Tether (USDT) Dominates 75% of the Stablecoin Market, But Can It Implode Like FTX?

Some market analysts think that Tether could also implode like FTX, if not audited duly by third-party agencies. This implosion would likely be tied to its banking partners.

Stablecoin issuer Tether (USDT) has always attracted regulatory scrutiny, more so since it now commands 75% of the total stablecoin market. Tether (USDT) is the largest stablecoin, with a market cap of $119 billion, almost three times that of its closest competitor, the USDC coin. Some market analysts have recently raised concerns about the possibility of an FTX-like liquidity crisis for the stablecoin giant.

Justin Bons, founder of Cyber Capital, sparked the latest wave of concerns when he shared his view that Tether could be a bigger scam than FTX.

In his post on the X platform last week, he wrote:

“One of the biggest existential threats to crypto as a whole. As we have to trust they hold $118B in collateral without proof! Even after the CFTC fined Tether for lying about their reserves in 2021.”

The U.S. Commodity Futures Trading Commission (CFTC) fined Tether a hefty $41 million civil penalty in 2021 for falsely stating that they fully backed the USDT stablecoins with reserves. The USDT market supply has increased by 20% over the last two years, raising concerns as Tether now controls 75% of the stablecoin market.

Some market analysts believe that Tether could also implode, like FTX, if it is not audited properly by third-party organizations. According to Sean Lee, co-founder of IDA Finance, a potential Tether implosion would likely be connected to its banking partners, while FTX collapsed because it was unable to fulfill $6 billion in customer withdrawals over three days.

During the crypto winter of May 2022, Tether swiftly processed over $16.7 billion in customer withdrawals (USDT) within 10 days. In contrast, during the 2008 financial crisis, Washington Mutual Bank was unable to fulfill $16.5 billion in withdrawals over 10 days.

Is Tether Too Big to Fail?

Some believe that Tether is too large to fail. Anndy Lian, an author and blockchain specialist, believes that Tether is unlikely to encounter any problems, but he warns that large centralized entities still pose a risk to the cryptocurrency industry. Lian added:

“Cryptocurrencies were initially created to operate without centralized control, promoting transparency, security, and user autonomy. However, Tether, as a centralized stablecoin issuer, wields substantial influence over the crypto market due to its widespread use for trading and liquidity.”

Earlier this month, Tether made a significant investment of $100 million in Adecoagro, a Latin American agricultural behemoth, acquiring a 9.8% stake in the company.