Tether, the company behind the popular USDT stablecoin, announced this week that it will stop issuing new tokens on the Bitcoin blockchain through the Omni Layer protocol. While existing USDT tokens on Bitcoin will continue to be supported for at least another year, this move signals the end of an era for one of the first ever stablecoins.
Launched in 2014, Tether's Omni Layer token was revolutionary, providing a way for crypto traders to get price exposure to the US dollar without leaving the crypto ecosystem. For years it was the dominant stablecoin in the market. However, as Tether expanded to other blockchains like Ethereum and demand for Bitcoin-based tokens declined, the Bitcoin version of USDT fell out of favor.
Tether says the decision was driven by low usage and trading volumes for USDT on Omni Layer. Most activity has shifted to Tether's ERC-20 token on Ethereum, which now accounts for over 65 billion USDT in circulation versus just 3 million on Bitcoin.
The Rise and Fall of Omni Layer Tether
When Tether first launched on Omni Layer in 2014, the project was groundbreaking. It created for the first time a crypto asset with a stable value pegged to fiat currency. This allowed traders to avoid converting between USD and crypto when managing positions.
It proved hugely popular in the 2017 bull market as traders piled into USDT as a safe haven during Bitcoin's volatile price swings. Volumes surged into the billions of dollars daily on exchanges like Bitfinex, making it the dominant stablecoin.
However, problems emerged when Tether struggled to prove it actually held adequate USD reserves to back the ballooning USDT supply. This led to ongoing suspicion and regulatory scrutiny around USDT's legitimacy.
Meanwhile, competition arrived in the form of rival stablecoins like USDC, BUSD, and DAI. These alternatives weren't tarnished by Tether's controversies. At the same time, Tether began migrating USDT to Ethereum to gain access to DeFi.
This perfect storm caused Omni Layer Tether's dominance to evaporate. Volumes dried up as exchanges dropped support and users abandoned it for alternatives on other blockchains. Tether is now putting the Bitcoin version of USDT out of its misery.
The Bigger Stablecoin Picture
Tether discontinuing Bitcoin USDT is symbolic of a broader shift occurring in stablecoins. The market is now fiercely competitive with serious contenders like USDC and BUSD seeing their market shares grow.
In fact, USDC's circulation now exceeds USDT's. And there are concerns regulatory scrutiny around Tether's reserves could eventually threaten its dominance. We may be slowly moving toward a landscape with multiple co-existing stablecoins rather than one clear leader.
The past month also saw two major new entrants to the market:
- PYUSD: PayPal launched its own stablecoin PYUSD in early August, backed 1:1 by the company's reserves. It brings a mainstream brand into crypto-native stablecoins. However, for now it is only available within PayPal's walled garden system.
- FDUSD: Crypto exchange giant Binance introduced the BEP-20 FDUSD token in partnership with First Digital Trust. It joins BUSD as another Binance-affiliated stablecoin.
With heavyweights like PayPal and Binance now competing, innovation and development in stablecoins is likely to accelerate. This could be a boon for DeFi and crypto adoption overall.
The Future of Tether
While Tether is ending Bitcoin USDT for now, the company hinted it may return to Bitcoin in the future. Tether announced it is working on a project called RGB that would see USDT reissued on a new Bitcoin-based smart contract platform.
For now, Tether will focus on Ethereum, its dominant chain for USDT. However, Ethereum faces its own challenges and threats from rival chains like BNB Chain and Solana. This emerging "battle of the blockchains" could reshuffle the deck once again in terms of which chains see the most stablecoin usage.
Perhaps the ideal future is one of true chain-agnostic, cross-platform stablecoins that provide consistency for users across ecosystems. But competing business interests across chains may continue to divide stablecoins along blockchain lines.
Either way, Omni Layer USDT will soon be relegated to a footnote in stablecoin history. And Tether's dominance faces more threats than ever before. While Tether isn't going away, its crown may be slowly slipping.
Is Centralized Stablecoins' Dominance Under Threat?
Tether's news has some wondering if centralized stablecoins like USDT may eventually lose ground to decentralized algorithmic alternatives. However, USDT and USDC still dominate the market for now. What are the prospects of decentralized stablecoins rising to compete?
How Will Regulatory Pressure On Stablecoins Play Out?
With controversies around reserves and regulation plaguing USDT, there are concerns about authorities potentially cracking down on centralized stablecoins. Could regulatory pressure undermine Tether and benefit decentralized options?
The end of Bitcoin Omni Layer Tether marks a seminal moment in stablecoin history. While it was once dominant, competitors on other chains left it in the dust as the market evolved. With new entrants from PayPal and Binance entering along with a burgeoning decentralized stablecoin space, Tether now faces its biggest challenges yet. However, its pioneering legacy in crypto will not be forgotten, even as the stablecoin world changes around it. Only time will tell whether Tether can adapt and maintain its status as the stablecoin leader.