Tether Defended USDT’s Expanding Role in Crypto Market Liquidity

Tether published a defense of USDT on August 27, 2018, arguing that customer demand—not unsupported issuance—was driving the dollar-linked token’s growth across cryptocurrency exchanges. The company embraced Chainalysis’s description of Tether as having “bank-like” utility while rejecting suggestions that it functioned like a central bank or facilitated manipulation more than other tradable assets.

The dispute mattered because USDT was no longer a peripheral instrument. CoinMarketCap’s August 27 snapshot ranked Tether eighth by reported market capitalization, at approximately $2.806 billion, and recorded about $2.719 billion of trailing 24-hour trading volume. That reported volume exceeded ether’s $1.407 billion and amounted to approximately 96.9% of USDT’s displayed market capitalization.

That ratio is a Coinburn calculation from one aggregator snapshot, not a measure of unique tokens changing owners. Gross exchange volume can count the same units repeatedly, and CoinMarketCap’s historical page does not provide an audited consolidated tape.

Chainalysis identified a market bridge—and risks

Chainalysis’s August 2018 research described Tether as a substitute for banking functions that cryptocurrency traders could not obtain easily from conventional institutions. The report said USDT allowed traders to retain a stable accounting unit inside the crypto ecosystem and transfer funds among exchanges without repeatedly entering the slower fiat-banking system.

Its supporting data covered different periods rather than one event-day window. Chainalysis reported that trading volume in USDT pairs on selected Tether-accepting exchanges increased more than fifteenfold between October 2017 and March 2018, compared with growth of less than threefold for dollar pairs on selected exchanges that did not accept Tether. It said Tether was available on nearly 30 exchanges, although activity was concentrated on fewer than ten.

The firm’s blockchain analysis found that 91% of observed Tether transactions involved an exchange and that 73% of observed balances sat on exchanges. It also reported that 80% of newly issued USDT moved from Bitfinex to a small group of trading venues after issuance.

Chainalysis did not present those findings as an unqualified endorsement. Using Chainalysis, Coin Metrics and Kaiko data extending through various dates between March and June 2018, the report associated a growing share of USDT trading with lower-volume assets and patterns it considered indicative of pump-and-dump activity. It acknowledged that determining how much Tether independently caused exchange growth was difficult.

Tether disputed the adverse interpretation

Tether’s August 27 response accepted the liquidity thesis but challenged the manipulation inference. The issuer maintained that market participants requested new USDT, that demand originated with users rather than Tether or Bitfinex, and that the token merely supplied an efficient transport mechanism.

The company also asserted that every issued and sold tether had corresponding currency backing at a one-to-one ratio. That was Tether’s contemporaneous representation. Neither the August 27 statement nor the cited Chainalysis study constituted a conventional audit of Tether’s reserves, and the research did not independently establish the composition, custody or availability of the claimed backing.

Tether rejected the central-bank analogy on narrower grounds: it did not represent a country, set interest rates or oversee a banking system. Chainalysis’s terminology was functional rather than sovereign—it compared USDT’s stable-value storage and transfer role with services traders ordinarily expected from banks.

Event-day market data showed the divide

CoinMarketCap recorded USDT at $0.9978 in its August 27 snapshot, 0.34% below its displayed 24-hour reference. Kraken’s venue-specific daily report instead listed USDT at $1.00, down 0.08%, on approximately $1.26 million of Kraken trading. The difference illustrates why a continuously traded stablecoin had no single universal closing price: providers used different venues, pairs, timestamps and aggregation methods.

The defensible conclusion on August 27 was therefore limited but important. USDT had become a major component of crypto exchange liquidity, while the source of its demand, the adequacy of its reserves and the consequences of its concentrated distribution remained contested. Tether’s statement documented the issuer’s position; it did not settle those questions.