Massive USDT Minting by Tether: Liquidity Solution or Risk?

Tether minted 2 billion USDT on December 6, adding to its stockpile of prints over the months. With the latest move, the issuer of the most capitalized stablecoin, USDT, caps off a series of mints totaling 19 billion since November 6.

These actions reflect Tether’s dominance in providing liquidity to the crypto market. Nevertheless, it has raised concerns about transparency and systemic risks.

Tether Mints 4 Billion USDT This Week

Blockchain analytics tool Lookonchain reported that Tether minted 2 billion USDT during the late hours of the US session on Friday. This was just a day after the stablecoin issuer printed 1 billion USDT on Thursday, and another 1 billion USDT two days before that, on December 3.

“Tether minted 2 billion USDT again 6 hours ago! Tether has minted 19 billion USDT on Ethereum and Tron since Nov 6,” Lookonchain reported.

Minting involves creating tokens, effectively injecting liquidity into the crypto market. In theory, it helps facilitate smoother transactions while enabling traders to hedge against volatility. The addition of USDT could enhance liquidity, potentially stabilizing prices and narrowing spreads during high trading volumes.

With Bitcoin trading above $99,000 and experiencing high volatility, increased USDT liquidity could, depending on its deployment, stabilize markets or exacerbate price fluctuations.

However, the sheer scale of recent mints, totaling 19 billion in just over a month, has prompted speculation. While Tether’s ability to meet liquidity demands swiftly demonstrates its utility, it also raises questions about the potential for over-supply if not effectively managed.

Transparency Concerns and Backing Debates

The crypto community has voiced concerns about whether Tether’s minting aligns with adequate reserves. Critics argue that excessive minting without full transparency could undermine market confidence, particularly if Tether cannot substantiate its reserves.

“Trustless systems thrive on transparency. Too much minting without clarity can lead to uncertainties, just like bad coffee,” one user on X quipped.

This is not the first time this subject has come up. In the past, Tether’s CEO Paolo Ardoino addressed these concerns, emphasizing the company’s focus on strong backing.

He stated that stablecoins should maintain reserves primarily in highly secure assets like US Treasury bills to mitigate risks from uninsured cash deposits. Ardoino also cited ongoing discussions with regulators to establish frameworks that secure stablecoin operations.

“Stablecoins should be able to keep 100% of reserves in treasury bills, rather than exposing themselves to bank failures by keeping big chunks of reserves in uninsured cash deposits. In case of bank failure, securities return to the legitimate owner,” Ardoino wrote.

Nevertheless, the recent mints highlight Tether’s strategies to optimize liquidity. For instance, a significant portion of USDT is reallocated from less active blockchains to Ethereum, meeting surging demand on this network.

Such adjustments help sustain Tether’s role as a primary source of liquidity in both centralized and decentralized markets, where stablecoins constitute an estimated 85% of daily trading activity.

Despite these benefits, the minting spree also shifts liquidity dynamics. Smaller blockchains could face diminished activity as USDT supply consolidates elsewhere. Additionally, heightened USDT supply on Ethereum might lead to increased network congestion, elevating transaction costs during peak trading periods.