Tether Bets on Emerging Markets as Stablecoin Battle Intensifies

Tether is making inroads into emerging markets as competition grows with rival stablecoin issuer Circle.

The largest cryptocurrency after Bitcoin and Ether, Tether’s USDT has long been the leading stablecoin, a type of digital token pegged to a real asset, such as the dollar. But USDT’s dominance has come under pressure recently. Rival USD Coin (USDC), issued by

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and Fidelity-backed Circle is gaining more and more market share amid unanswered questions about Tether’s collateral.

Against that backdrop, Tether is accelerating its foray into emerging markets, launching a token pegged to the Mexican peso on Thursday.

“There is a huge need for stablecoins in emerging markets,” said Paolo Ardoino, Tether’s chief technical officer. Barron’s.

“You talk to people who come from Turkey, from Argentina and Venezuela and Brazil and Senegal… Tether never spent a dime on marketing there, but everyone uses Tether,” says Ardoino. “You can go to the barbershop, you can buy houses, you can pay for any service or good in Tether.”

Ardoino estimates that more than 50% of USDT is still used in conventional cryptocurrency trading, but that 20-30% of Tether tokens circulate in emerging markets as a form of altcoin. With $72 billion in circulation as of Friday, according to CoinMarketCap, 20% to 30% of Tether’s issuance would represent between $14 billion and $22 billion.

The Tether chief said that USDT in emerging markets is bought directly from major exchanges, such as Binance or

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in addition to local options such as Bisto from Latin America, and not directly from the company. Trading companies can buy and redeem Tether USDT directly as so-called authorized participants, but most people buy and sell the token on secondary markets such as exchanges.

Stablecoins and Tether play a critical role in the crypto economy, acting as the foundation for digital asset liquidity, trading, and lending. Tether’s daily trading volumes are regularly double that of Bitcoin. But following the collapse of Terra, a stablecoin that fueled a $400 billion crypto market rout earlier this month, the company faced new scrutiny over its transparency.

Tether claims to back each token with $1 in cash or cash equivalents, but regular “collateral reports” detail significant holdings in commercial paper, foreign debt, and digital tokens, raising questions about whether it is fully collateralized.

The pressure on Tether accelerated when the token briefly lost its own peg two weeks ago. The token traded at a discount of up to 5 cents on the dollar, although authorized participants said the redemption process for $1 never failed.

Tether’s market cap, which matches the number of USDT tokens in circulation, shrunk by more than $10 billion in two weeks, from $83 billion to $72 billion, as money flowed into the market. rival USDC. The market capitalization of the token issued by Circle has grown from $48 billion to $53 billion over the same period.

“Very clearly there is a flight to quality,” says Jeremy Allaire, CEO of Circle, in an interview with Barron’s.

“We are a regulated company, this has been a regulated product for four years, we provide transparency now on a weekly basis,” says Allaire. “That is what the market wants. The market understands that this is really stable. I think people are literally voting with their dollars.”

For his part, Ardoino doesn’t seem to care too much if USDC gains ground.

“If Tether is going to become the second largest stablecoin, that’s fine,” says Ardoino. He articulates a vision of Tether not as an alternative to money sent via wire transfers by large corporations, but as a way to help people in emerging markets access hard currency.

“If Fidelity ultimately wants to put all of its assets into USDC, there is no way we will compete. But I don’t care either. That is not our business model,” says Ardoino. “It’s not all about money.”

While El Salvador and the Central African Republic have adopted the highly volatile Bitcoin as a form of legal tender, little is known about the footprint of stablecoins in emerging markets.

Officials from the International Monetary Fund (IMF) warned last month that the more widespread use of cryptocurrencies in emerging markets “could undermine domestic policy goals” in its annual financial stability report.

At the same time, much work remains to be done to extend an alternative form of banking and payments to less economically developed countries. As of 2017, some 1.7 billion adults were “unbanked,” without an account at a financial institution or mobile money provider, according to the latest World Bank research.

“You should be careful with this. But at the same time, you want to appreciate that there’s a major problem with people who aren’t connected to a banking-like system and don’t have the ability to make simple payments,” says Bryan Routledge, a finance professor at Carnegie Mellon University.

“I may be skeptical of Tether’s business model in terms of whether or not they are fully supported, but you can see the opportunity as a policymaker to assess this with fresh eyes.”

Email Jack Denton at jack.denton@dowjones.com

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