USDT surpasses Ethereum in market capitalization, why is the public chain value not growing at the same time?
Author: Jon Reiter
Compiled by Luffy, Foresight News
Original title: What is the signal behind USDT's market capitalization overtaking Ethereum?
At one point, USDT surpassed Ethereum in market capitalization. At the time of writing this article, the market value of USDT was slightly lower than that of Ethereum, and the market value difference between the two was only a few percentage points. What does it mean that USDT has become a cryptocurrency after Bitcoin?
At the same time, one phenomenon worth pondering is that the size of stablecoins has continued to expand over the past ten years, while the market capitalization of mainstream non-stablecoin coins such as Bitcoin, Ethereum, Solana, BNB, Ripple, and Wave has stagnated all year round.
This has nothing to do with safety
First, make it clear what this does not mean. Many Web3 solutions rely on one type of asset to provide a “financial safety cushion” for another type of business. A typical example: the general design logic of oracles, where decentralized autonomous organizations (DAO) vote to ensure data accuracy, and the price output by the oracle is used to settle various contract transactions. Projects such as Chainlink are all variants of this logic.
The premise for the establishment of such a mechanism is that the total market value of DAO governance tokens must be much higher than the size of transactions settled through this oracle. The reason is simple: if it only takes $1 million to control the DAO but can manipulate the settlement of contracts worth $10 million, this system is completely economically insecure. This is not a technical loophole in the code; rather, there is a flaw in the economic incentive design. Interested people can control the system at low cost to achieve self-interest and contrary to objective and impartial results.
However, Ethereum does not provide any financial security endorsement for USDT at all. USDT is also distributed on dozens of public chains such as Bochang, and none of these public chains can back USDT. Theoretically, even if someone breaks down a certain public chain that issues USDT, and either doubles or invades other people's tokens, the USDT operating company Tether can directly freeze, recover the on-chain tokens, and reissue them on other chains.
Whether the total market value of this public chain is only $1 or $1 trillion, Tether can complete the operation: it only needs to pay the on-chain transfer fee and fully control the right to dispose of the token. Even if the attackers completely control the entire public chain and block Tether's official contract interaction, the project party can simply abandon this chain and refuse to pay all USDT on the chain. At that time, the team can guarantee that innocent users can redeem assets on other chains through solutions such as hard forks and offline ownership certificates. Tether will independently arrange the entire process. Controlling the public chain also has no influence on Tether's dollar reserves.
It is undeniable that USDT relies on public chain circulation, so the market needs a number of stable, usable, and secure underlying networks. But that's all; the core entity of asset security has always been Tether. As long as there is a reliable public chain on the market, USDT can circulate normally. A reliable standard for public chains is that native tokens generally have a considerable market value. However, the market value of native tokens does not provide a real security guarantee for stablecoins, so it is entirely possible to create a public chain with a market value of only a few billion dollars or even hundreds of millions of dollars of native tokens, carrying the circulation of stablecoins on a scale of 100 billion dollars. If the total market value of a public chain's native tokens is only $1 million, it is difficult to support a mature DeFi ecosystem, and users won't be willing to deposit billions of USDT on it; however, as long as users are willing, there are no hard barriers in terms of security logic.
This doesn't mean that Ethereum itself is flawed
The market value of USDT continues to rise relative to Ethereum, which does not explain the loss of the value of Ethereum itself. Admittedly, the rise in USDT market value means that more and more capitalized users are in demand to use stablecoins, but this does not mean that the demand for USDT use exceeds that of the Ethereum ecosystem.
USDT is a value storage tool that relies on issuer reserves and endorsements; ETH tokens are essentially proof of future earnings in the blockchain space of the entire Ethereum network. Even if the market is extremely optimistic about Ethereum, the network expansion will lead to a sharp increase in the supply of block space and a drop in processing fees, which will suppress the price of ETH; conversely, the extensive use of USDT by users will only boost the total amount of USDT issued, and will not change the price of a single USDT of 1 dollar.
The fact that users choose USDT to deposit funds has nothing to do with the competitiveness and development prospects of Ethereum as the underlying platform for Web3. We can intuitively understand it through two extreme hypotheses: USDT can far surpass Ethereum in both scenarios, but the situation of Ethereum is very different.
Scenario 1: The market basically abandoned Ethereum, and a better underlying public chain appeared. The price of ETH dropped sharply, but users still used USDT transfers frequently.
Scenario 2: Ethereum achieved a major breakthrough in technology (two-tier architecture innovation, zero-knowledge proof technology maturity), the entire network's capacity expansion capacity skyrocketed, the supply of block space was sufficient, and processing fees declined sharply.
Both situations will cause the market value of Ethereum to shrink. At this time, the USDT market value may skyrocket or fall at the same time, depending entirely on users' demand for stablecoins. Changes in the size of USDT are not tied to the quality of Ethereum itself.
The key lies in the actual application requirements
The most needed scenario for Web3 is unlicensed dollar transfers. Four years ago, we wrote an article analyzing the unique value of this scenario. Today, it is already the core application implemented in the crypto industry.
There is a cliché in the industry: many people say they are optimistic about blockchain technology; in reality, they only care about the flow of capital. Unauthorized dollar transfer tracks deposit massive amounts of money, but this scenario requires extremely low technical requirements, and does not require complicated agreements or deep cryptographic support. USDT was first issued based on the Bitcoin sidechain Omni. The simple understanding is that the issuer sells Bitcoin tokens in exchange for dollars, and users then use the vouchers to redeem dollars. Although the logic is not exactly the same, the core is similar. Relying only on the Bitcoin underlying layer, there is very little code to build usable stablecoins: define a batch of redemption limits corresponding to the US dollar, and fully manage reserve funds to achieve basic stablecoin functions.
The core of the implementation of this scenario is that decentralized stablecoins that have trusted issuers and are untrustworthy generally have all kinds of flaws. However, by superimposing the issuer's credit on top of the simple underlying layer of Bitcoin, it is possible to meet transfer requirements; high-end technology is not just what is needed. USDT is just a set of smart contracts with simple logic, and the technology itself has no barriers.
This also explains the value differentiation between major public chains. Ethereum is currently the most mainstream smart contract public chain, but any public chain that works properly is enough to carry stablecoin issuance. Which chain the stablecoin funds flow to has nothing to do with the overall size ceiling of USDT. Stablecoins have extremely low requirements for public chain performance, and the underlying structure of reserve stablecoins has not been substantially iterated for many years.
If we're talking about Ethereum, Wavefield, Arbitrum, or Tether market capitalization on other blockchains, this might reflect the relative value of these blockchains. If unlicensed US dollar transfers are the core requirements of the industry, it is easier to attract capital and deposit large amounts of USDT if they are good at carrying this scenario. Major public chains can compete with each other, but as long as the stablecoin itself has utility value, the overall market value of USDT can continue to expand.
Ethereum is currently the smart contract public chain with the highest market capitalization. Using this as a benchmark, it can roughly measure the size of the entire contract public chain circuit. Currently, Bitcoin accounts for about 60% of the total crypto market value. After excluding stablecoins, Ethereum accounts for half of the remaining market, and the remaining public chains share the other 50%. According to rough estimates, the total value of the entire smart contract public chain is about twice the market value of Ethereum. Over the years, the overall market value of this track has been stagnant for a long time; however, the stablecoin sector, led by USDT, has continued to skyrocket.
Looking at each blockchain, the stablecoin market capitalization may or may not grow. However, judging from the macro total, many years of data have proved that there is no positive correlation between the market value of public chain native tokens and the overall size of stablecoins.
There's more data and products to prove it. BlackRock's BUIDL tokenized money fund and Circle USDC are similar competitors to USDT, but such products hardly add value to the public chain where they are issued. The most intuitive fact is that the scale of stablecoin-related products has been expanding year after year, while the market value of the underlying public chain's native tokens has been flat for a long time.
Summarize
There's a consistent story here. The core requirements of users are unlicensed dollar assets, and are willing to trust stablecoin issuers, and don't even care about the issuer's background details. Objectively speaking, there are many disputes over the background and transparency of USDT's offshore reserves. Credit endorsements are far worse than BlackRock and PayPal, but USDT is far ahead in size.
Traditional financial giants have entered the stablecoin circuit one after another, touting their strong brand advantages, yet they have never been able to separate mainstream market share from USDT. USDC alone has a certain size, but it lags far behind USDT in terms of long-term scale, and there have been many disputes related to payment crises in the past, making it difficult to rank first in the first tier for a long time.
For ordinary users, as long as tokens are widely distributed and easy to transfer, it doesn't matter who the issuer is; the governance model of the underlying public chain will not affect users' choices. Even though public chain tokens are highly centralized and controlled by a single entity (wave field); they have relied on multi-signature wallet management (Polygon) for many years; they claim to be self-hosted but have a Security Commission asset freeze authority (Arbitrum); they have a complicated structure, are operated by a single enterprise, and are not completely transparent (Base); users use them as usual.
The only core appeal of users is to transfer US dollars without permission. Currently, USDT has launched 14 public chains, and USDC covers more than 30. Publishers will actively lay out any public chain where users gather. Publishers don't care about the underlying network, and users don't care either.
The only real brand recognition targets in the entire crypto industry are Bitcoin and USDT, followed by USDC. Users will use such stablecoins on any public chain. A stablecoin launched by an issuer with an offshore background and questionable credit can grow into the second-largest digital asset by market value; moreover, it has mainly been circulating in public chain waves controlled by a single person over a long period of time. All of this shows that users are more concerned about the use-scenario that does not require a license dollar rather than the operating mechanism behind it.
If regulators in various countries issue compliance licenses for unlicensed US dollar stablecoins, it means that the unlicensed transfer model is officially recognized. As long as all types of compliant and offshore stablecoins receive regulatory endorsements, the size of the entire racetrack will continue to expand, and the size may even far exceed the smart contract public chain that hosts them.
Twitter:https://twitter.com/BitpushNewsCN
Compare the TG exchange group:https://t.me/BitPushCommunity
Compare TG subscriptions:https://t.me/bitpush
