Amidst regulatory pressure in Europe, Tether (USDT) has announced it is launching a new euro-pegged stablecoin which could fulfil the requirements set by the regulators in the region. This comes at a time when Tether is getting delisted for not meeting the Markets in Crypto Assets (MiCA) regulation, the EU's comprehensive framework for digital assets.
USDT accounts for more than 70% of the stablecoin market as it has a market cap of over $100 billion. This ensures that any decision taken by Tether will cause ripples in the crypto market, specially the stablecoin market.
USDT Hanging onto Uncertain Future
Tether's flagship product, USDT, faces an uncertain future in Europe as MiCA implementation approaches. The regulation's strict requirements for stablecoin issuers include maintaining substantial reserves and establishing a physical presence in the EU.
Data from CryptoCompare shows that European USDT trading volumes account for approximately 25% of global USDT transactions, representing over $5 billion in daily trading volume. The potential impact of regulatory compliance has raised concerns among European crypto exchanges, where USDT pairs represent up to 40% of trading activity on major platforms.
EURT, EURQ and USDQ - Which One Will Provide A New Direction?
Tether's euro-pegged stablecoin represents an attempt to maintain its European presence while adapting to regulatory requirements. EURT is designed with MiCA compliance in mind, featuring enhanced transparency measures and stricter reserve management protocols.
However, in the face of new MiCA challenges Tether has announced its discontinuing support for EURT "considering the evolving regulatory frameworks surrounding stablecoins in the European market". The company revealed that it will prioritise on other stablecoins like EURQ and USDQ "until a more risk-averse framework is in place—one that fosters innovation and offers the stability and protection".
These new stablecoins are developed in collaboration with the Dutch fintech company Quantoz and designed to meet the upcoming MiCA rules.
Tether’s decision to halt EUR₮ issuance follows the relative lack of demand for the token, which currently holds a market capitalization of only $27 million. In comparison, stablecoins like Circle’s EURC, with a $90 million market cap, and Stasis Euro, with $130 million, have seen greater traction in the European market.
The existing euro stablecoin market, dominated by Circle's EURC with a market cap of $300 million, presents a significant opportunity for Tether. Industry analysts project the euro stablecoin market could grow to $5 billion by 2025, driven by increased institutional adoption and cross-border payment demands.
Earlier on December 17, Tether said it is investing in Malta-based stablecoin firm StablR which has a euro-pegged stablecoin StablR Euro (EURR), and a US dollar pegged stablecoin StablR USD (USDR). At the time of the announcement, EURR had a market cap of $3.4 million, representing about 1% of the total euro-based stablecoin market.
How past controversies affected Tether?
Tether's journey has been marked by numerous controversies. The company's $18.5 million settlement with the New York Attorney General's office in 2021 resolved allegations about misrepresenting its reserve backing.
The investigation revealed that between 2017 and 2019, Tether operated without access to regular banking services, relying instead on a complex network of third-party payment processors. During this period, USDT's market cap grew from $10 million to over $2 billion, raising questions about the source of this growth.
The Paradise Papers leak exposed close ties between Tether and Bitfinex executives, leading to further investigations. A 2019 academic study suggested that a single whale using USDT was responsible for driving Bitcoin's 2017 bull run, though Tether disputed these findings. Despite maintaining only a fraction of its reserves in cash - approximately 82% in commercial paper and other assets according to their latest attestation - USDT has managed to maintain its dollar peg through multiple market crashes.
Tether to maintain dominance?
Analysts and crypto experts are of the opinion that Tether will maintain its dominance in the stablecoin sector despite recent setbacks. With the launch of EURQ and USDQ it will wade its way out through European regulations and the crypto market is anxiously watching how it fares.
The company's Q4 2023 attestation showed significant improvements in reserve quality, with US Treasury bills now comprising 85% of holdings, up from 58% the previous year.
The market data vindicates expert opinion as it shows Tether's dominance in the stablecoin sector will continue to grow, with USDT's market share increasing from 48% in 2022 to over 70% in 2024.
While Tether is likely to face competition from other stablecoin issuers as well as traditional financial institutions, it will continue to play a major role in the crypto market. JP Morgan estimates that regulatory-compliant stablecoins could capture up to $1 trillion in transaction volume by 2025 and Tether adaptation forms a crucial part of it.