Tether, the most successful company you’ve never heard of

 

The second most common criticism levelled against the crypto industry is that crypto has no practical use. The undisputed first is of course: “Crypto is a scam!”

Thing is, these allegations aren’t entirely baseless. Much of the crypto industry (besides bitcoin and a select few protocols) has failed to live up to its hype and struggled to find a killer use case – the one breakthrough app that has a chatGPT moment, and which on-boards a billion people to become a household name.

Sure, you could say speculation (aka glorified gambling) is a killer use-case and you’d be right. Gambling is a multi-billion-dollar, global industry and in a way, crypto has democratised it – allowing the masses to participate irrespective of their geography and financial standing.

But surely that can’t be it? For all the promise that crypto holds, if gambling is the best it can offer, I would deem it a failure.

However, there is one crypto application that has been a rip-roaring success – one that arguably has had the best product-market fit in all of the crypto industry besides bitcoin.

Stablecoins.

For the non-crypto natives, a stablecoin is a cryptocurrency that’s pegged one to one to a real-world currency or asset. The most popular type of stablecoins in the world are ones that are pegged to the US dollar, for obvious reasons.

And in the world of stablecoins, there is only one undisputed 800-pound gorilla: Tether.

Tether is the issuer of the most popular stablecoin in the world, USDT and has a market cap of a whopping US$98 billion.

To put that into perspective, Tether is four times larger than Maybank by market cap. In fact, it’s larger than Maybank, CIMB, Public Bank and RHB combined. Tether is even considerably larger than the largest fintech player in the world, PayPal and is within earshot of Citibank. If Tether were a bank, it would undoubtedly be one of the largest in the world.

If that is nutty, consider this: Tether made a profit of US$6.2 billion last year. This makes it more profitable than financial behemoths Blackrock and Goldman Sachs.

And they achieved this incredible feat with only 60 employees. For context, Maybank employs around 43,000 people – 716 times the employee count of Tether.

This likely makes Tether the most profitable company per employee in the world. To boot, they did this in a mere 10 years, having been founded in 2014. Talk about a meteoric rise.

So what is all this USDT used for?

Besides being widely used for crypto trading, one of its largest use cases is as a savings account in hyperinflation-stricken countries such as Turkey, Argentina, Lebanon and Venezuela, among many others.

Many in these countries can’t get a US dollar denominated bank account and even if they could, they wouldn’t trust their banks to keep them safe. In their desperation, they turn to the US dollar – the least bad fiat currency – in the form of USDT.

And because it’s on blockchain rails, it can be sent to anyone across the world within seconds for pennies on the dollar. Compare this to the conventional method of sending an international wire that might take days and cost a few percent of the transfer amount and you immediately see the allure of USDT.

In essence, Tether’s USDT acts as an off-shore, minimally-regulated, friction-reduced US dollar denominated bank account for the millions trying to escape the devaluation of their native currencies.

But for all its success, Tether has been shrouded in mystery and incredible amounts of controversy. In fact, Tether gets so much criticism and hate that there is even a term for those who excoriate it: Tether truthers. They question the genuineness of some of Tether’s past activities.

In addition, its detractors say that since Tether operates outside the auspices of the US and its regulatory tentacles, it is the payment method du jour for unscrupulous, malicious actors involved in unsavoury, illicit activities.

Considering its chequered past and reputational issues, it’s remarkable that Tether hasn’t just survived this long but has continued to extend its dominance in the ultra-competitive stablecoin market. Tether now accounts for somewhere around 60-70% of the stablecoin market and is more than three times larger than its largest competitor, USDC (Circle USD).

So what does the future hold for Tether? Some say it’s just a matter of time before the US government finds a way to shutter its operations, while some others point to its historical resilience and say it’ll only continue to grow in relevance and dominance.

But irrespective of what happens to Tether, I can bet my bottom dollar (pun intended) that the stablecoin industry will continue to grow, prosper and both power crypto applications and undergird the lives of millions in the global south. - FMT

The writer can be contacted at kathirgugan@protonmail.com.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.