Tether and other stablecoins’ ‘dry powder’ narrative: True or false?

The crypto-community has been gearing itself for another Bitcoin halving and many observers are expecting a massive price pump to grace the BTC market soon. This speculation has largely stemmed from the excessive printing and exponential growth of stablecoins’ market cap over the last few months. The continuous minting of stablecoins, especially Tether [USDT], has given birth to a narrative that the new stablecoins living on exchange wallets are “dry powder,” waiting to be utilized.

Source: Messari

A better means to understand the deployment of these stablecoins is observing crypto-asset withdrawals. According to Elias Simos, Researcher at Decentral Park, crypto-asset withdrawals could act as a benchmark to understand the deployment of this “dry powder,” as value enters exchanges in USD and leaves as crypto.

For instance, despite an overall increase in the total market cap, Bitcoin balance on exchanges has fallen by 350k, which would account for withdrawal of at least $2.2 billion, if the average price of BTC was considered to be $6.3k. The users after withdrawal have two options, namely,

Elias explained,

“There’s not that many options out there – you either store it, or…I guess lend it? Even so you lend it to someone to do what? Likely back to an exchange and speculate.”

He added,

“So store it sounds like the more plausible answer. And in that case, this is demand already fulfilled.”

This could mean that these newly-formed stablecoins were already deployed. Given stablecoins’ limited penetration in the industry, Elias opined that the opportunity cost of stablecoins living elsewhere is high.

If deployed on exchanges, these stablecoins could provide liquidity, year yields, and at least chase returns; however, elsewhere, there are not many options. If we put the “dry powder” deployment in the above fashion, it could help exchanges with tighter spreads and liquidity that can make violent crashes, like the one in March, less likely.

However, does this fit the “dry powder” picture? The largest stablecoin printer, Tether, has been at it for several months now, printing USDT in bulk while calling it an “inventory replenish.” On 28 April, Tether’s treasury printed $30 million USDT and it has been reported that the treasury minted a sum of $960M, surpassing the market cap of Tron [TRX]. In fact, due to the disputed history of Tether and the questions surrounding its activities, skeptics believe something bigger might be at play.