Are stablecoins crypto’s big success?

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Stable relationships

Maybe, just maybe there’s an argument to be made that stablecoins are the most successful part of crypto at this moment. 

Sorry, not sorry. 

But really, we’ve talked about the incredible rise they’ve seen, and now Castle Island Ventures, alongside Artemis and Brevan Howard Digital have a new survey that looks into the prevalence of stablecoins in certain emerging markets. 

The survey looked into roughly 2,500 crypto users in Nigeria, India, Turkey, Indonesia and Brazil. 

“While the most popular goal for stablecoin users in the sample was trading crypto or NFTs, other non-crypto uses were not far behind. Overall, 47% of respondents indicated that one of their major goals was saving money in dollars, 43% mentioned better currency conversion rates, and 39 percent said earning a yield,” the report said.

“The findings are clear: non-crypto uses account for a meaningful share of stablecoin usage modes in the countries surveyed.”

Nic Carter of Castle Island Ventures told me that he’s been curious about tracking the data because he wanted to better understand how folks are using stablecoins. 

And part of the desire to run this study was to take it to politicians on Capitol Hill, which is Carter’s next step. Washington, and various US officials, have been pretty vocal about their stablecoin opinions. Though some, like Senators Kirsten Gillibrand and Cynthia Lummis, are also looking to introduce regulations around stablecoins.

“If you’re looking at emerging markets, this is a case of currency substitution where savings would be held in the naira or the Turkish lira or the Indian rupee, and it’s actually being converted into the dollar,” Carter explained.

“So this is a positive buying pressure for the dollar and all the dollar assets that the stablecoin issuers hold which are treasuries. So my point is, this is a flow into the dollar. It’s a new source of demand. It’s very meaningful, and obviously it’s supportive of US interests.”

But while it may impress US lawmakers, those in, say, Nigeria might not be as thrilled with some of the results. As we’ve previously reported, Nigeria became more hostile toward crypto earlier this year, detaining two Binance executives (one of which, Tigran Gambaryan is still being held in the country), and charging Binance with tax evasion and money laundering. 

Nigeria’s attempts to regulate the industry have perhaps not been as successful as the country hoped, based on the data snapshot from the report. The survey took place from May to June earlier this year, with some onchain data being gathered through July. Nigeria arrested Gambaryan at the end of February.

“Nigerians love stablecoins,” Carter noted. Perhaps the country even has a right to be “paranoid,” given that the full survey results show that Nigeria came out on top in every category. 

“I think there actually is a crypto dollarization event happening in Nigeria, as far as I can tell, where people are actively deserting the naira and going to dollars via stablecoins. I think this is ongoing. It’s the first real crypto dollarization event,” Carter told me.

He did warn that he’s not sure if you can “quantify that 15% of [naira’s] devaluation is due to crypto,” especially given that the survey targeted crypto users, but the results show that perhaps Nigeria has a right to show concern. 

Putting Nigeria aside, the study was able to show that stablecoins, when used by some in emerging markets, allow access to exposure to the US dollar. 

They aren’t just a trading tool, and the result is something far more powerful than we’ve perhaps ever realized. 

— Katherine Ross

Data Center

• Following Wednesday’s CPI print, BTC is up 2.2% while ETH is up less than a percent (BTC: $58,102; ETH: $2,347)
• Stablecoins have a global market cap of $171 billion, down slightly over the past 30 days per rwa.xyz.
• Polygon has shed almost 5% of its stablecoin supply in the past week, now at $1.944 billion.
• Ethereum bridges have seen $315.8 million in net inflows in the past week. Over $432 million net has meanwhile flowed out from Arbitrum bridges.
• USDT contributed over 76% of the global stablecoin trade volume over the past day, per CoinGecko.

Backed by bitcoin

Word is going around that Tether earns more profit than BlackRock.

Kinda, but also not. 

Tether has made it a habit of reporting quarterly profit numbers alongside its attestation reports. Those reports describe the assets in the pool of reserves that give tethers their value.

As of its most recent attestation, for the end of Q2, there was almost $118.44 billion backing the tethers in circulation — conveniently over $5 billion more.

Which means all tethers were all properly backed by an equivalent value of assets in reserve, and then some. (It’s worth noting that attestations are not audits and Tether has never actually been “audited,” for reasons.)

Short-dated US Treasurys made up around 68% of Tether reserves, with reverse repurchase agreements, money market funds, secured loans and bitcoin the next largest categories.

Tether reported $1.3 billion in quarterly profit alongside that Q2 disclosure. A staggering amount considering how few people it employs — believed to be under 100.

Most of that profit comes from the US Treasurys it buys. Three-month Treasury bills currently carry a rate of 4.85%, and considering Tether owned almost $81 billion worth, the 10-figure profit sounds about right.

What isn’t usually discussed is that Tether is lumping in the profit from US Treasurys with the mark-to-market gains of its bitcoin and gold holdings, as outlined in one of its blog posts. And it’s inflating Tether’s profit numbers.

Take this year’s first quarter. Tether reported a throat-tightening $4.52 billion in profit. At the same time, the price of bitcoin went up almost 70%, which Tether apparently considers free profit.

Tether reported that its bitcoin holdings increased in value by $2.56 billion throughout that period — from $2.82 billion to $5.37 billion. The firm appears to have bought 8888.88 BTC throughout the quarter, going by the attestations and its onchain history, but we don’t know at what price Tether bought those coins. 

If we take the average price of bitcoin over the quarter, Tether would’ve spent $481.5 million on that BTC. 

Subtract that from the increase in value and you get Tether’s quarterly “bitcoin profit”: $2.08 billion, or 46% of the total that Tether reported. US Treasurys would’ve otherwise contributed 51% while gold’s price appreciation perhaps gave around 3%.

While bitcoin made up less than 5% of Tether’s reserve portfolio, it contributed nearly half of its reported quarterly profits.

This, of course, means that Tether’s profits are reduced when the prices of bitcoin and gold go down. 

Tether reported only $1.3 billion in profit in Q2, down nearly 70% from the prior quarter, even though it held almost $6 billion more in US Treasurys.

The difference is largely because the price of bitcoin fell 12% between quarters, so the value of Tether’s bitcoin went down by $648 million. Had bitcoin retained its value, Tether would’ve reported almost $2 billion in quarterly profit.

So, does Tether earn more profit than BlackRock? 

Lumping in bitcoin and gold appreciation in with US Treasurys profits, sure. Tether has to actually continue buying US Treasurys to earn money from them, but it doesn’t have to do anything to report its bitcoin and gold profits, only hold.

But by that system, Tether has reported earning $12.72 billion in net profit since Q4 2022, compared to BlackRock’s $9.829 billion.

If you only count Tether’s disclosed profits without bitcoin and gold, Tether would’ve made under $7.7 billion. Still monstrous, sure, but falls just shy of outpacing the world’s largest asset manager.

Tether is likely, in any case, the most profitable crypto company in the world, and one of the most profitable outside of it as well.

Depending on your definitions of profit, it might still need a few more years to eclipse BlackRock — but it seems inevitable.

— David Canellis

The Works

• Some consumers think that the popularity of stablecoins is going to fade, according to a Deutsche Bank survey.
• The Swift network is experimenting with digital asset transactions. 
• Former WeWork CEO Adam Neumann’s startup Flowcarbon is returning investor funds, Forbes reported. 
• Standard Chartered analysts wrote that bitcoin could top $125,000 with a Trump presidency and $75,000 with Harris.
• The CFTC announced a partnership to educate people on pig butchering scams. 

The Riff

Q: Do crypto crackdowns work?

Doubtful. When the technology is applied correctly, it’s generally resilient to most kinds of crackdowns.

In January 2022 — four months after China effectively banned bitcoin mining in multiple regions — the mainland still contributed an estimated 20% of bitcoin’s hash rate, according to the Cambridge Bitcoin Electricity Consumption Index, which unfortunately is no longer updated.

Granted, it’s difficult to know for sure where bitcoin miners are coming from. Cambridge was using IP addresses to derive locations, which can be muddied with VPNs and the like. 

There are otherwise anecdotes that suggest bitcoin mining is indeed still happening in China.

Similarly, ransomware is still prevalent despite the US government crackdown that started in 2021. And Tether is still the number-one stablecoin by far, even after all of its battles with authorities.

Might things have been much worse if there were no crackdowns at all? Perhaps. So, whether that means they’ve “worked” is probably more political than empirical.

— David Canellis

If we’re talking about a government or regulator trying to step in after crypto has found some niche use cases in the population, then I don’t think so. 

This, I think, is especially true when it comes to economies or countries where there are either gaps in the financial system, or the population’s financial needs are not fully being met. That is one of the core designs of crypto, after all. 

Take Nigeria. The country took action earlier this year, hoping to swiftly curtail the amount of crypto activity going on. But the data from the survey shows that many are still finding ways to access and utilize crypto. 

The US, though far different in its financial set up, is similar. It may be an uncomfortable sector to work in until proper regulation is in place, but that’s not killing or stifling innovation. 

— Katherine Ross

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