[Feature] CEXes Are Combining Stablecoins Except for USDT. Is Tether in Danger?

Binance, the world’s leading cryptocurrency exchange by volume, has recently announced BUSD auto-conversion effective 2022-09-29 at 11:00 (UTC+08). The platform users' existing balances and new deposits of these 3 stablecoins - USDC, USDP, and TUSD – will be all converted to Binance’s own stablecoin BUSD at a 1:1 ratio. Together, all the spot trading pairs of affected stablecoins will be removed as well. You may notice that Tether (USDT) is not on the list. Shouldn’t this be good news? In fact, not really.

Data as per the time of writing. Sources will be provided at the end of the article

As you can see from the table above, both BUSD & USDC are 100% backed by cash, US treasuries, and Reverse Repo, while USDT has only 70.5%. Both of them are also approved and regulated by the New York State Department of Financial Services (NYDFS), USDT on the other hand, was banned from New York instead. Even though USDT has the highest market capitalization among stablecoins, its cash collateral isn’t. It’s simply because the more stablecoin you issue, the higher the market cap you have. Market capitalization shouldn’t be the main consideration for us when choosing which stablecoin to hold, look at TerraUSD (UST), it was once the third-largest stablecoin.

Many actually do not know that FTX had already done so - way before Binance – by combining USD stablecoins and trading pairs and coincidentally, isolating USDT too. The world’s first and second crypto exchanges are making moves to consolidate stablecoins without including USDT might be somehow a red flag. Well, nobody could tell what exactly that red flag is at the current stage, guess we can only know what’s wrong when it happens.

FTX’s interface when depositing stablecoins, note that USDT is not within the list

Instead, USDT is listed under “Cryptocurrencies”. How ironic!

USD (combined) vs USDT spot trading pairs

In Binance’s official announcement, the exchange mentioned zero times of “delist” while the media are headlining delist here and there. The publication has sparked a lot of misunderstandings and misinterpretations over the scene, yet the crypto leaders who are in the game begs to differ. Jeremy Allaire, Co-founder & CEO of Circle, aka the issuer of USDC, tweeted, “Binance is not ending support for USDC, and change will likely lead to more USDC flowing to Binance.” He added, “Binance is trying to consolidate dollar liquidity w cash equivalent stables. That’s good for liquidity and market depth. USDT is NOT cash equivalent — not even close.”

From the perspective of Allaire and other crypto personalities, we know that they are more than happy to remove stablecoin trading pairs. Liquidity is then focused only on one trading pair, and need not be split between multiple coins. Sooner or later, as traders are moving towards combined USD trading pairs, liquidity in USDT pairs may slowly dry up. As crypto is a "monkey see, monkey do" business, I can foresee that more and more exchanges will follow in the footsteps of FTX and Binance. Tether is on the verge of being phased out, it will need to step up its game to survive in the fierce competition.

BUSD:

https://paxos.com/wp-content/uploads/2022/08/BUSD-Monthly-Stablecoin-Reporting-July-2022.pdf

USDC:

https://www.centre.io/hubfs/PDF/USDC%202022_Circle%20Examination%20Report%20July%202022.pdf?hsLang=en

USDT:

https://tether.to/en/transparency/#reports