USDT Market Cap Surpasses Ethereum: Why Has the Value of Public Chains Not Increased in Sync?

USDT's market cap has briefly surpassed that of Ethereum. As of the time of writing this article, USDT's market cap is slightly below Ethereum's, with only a few percentage points separating the two. What does it mean for USDT to become the second-largest cryptocurrency after Bitcoin?

At the same time, a thought-provoking phenomenon is that over the past decade, the scale of stablecoins has continued to expand, while the market caps of mainstream non-stablecoin assets like Bitcoin, Ethereum, Solana, BNB, Ripple, and Tron have stagnated for years.

This is not related to security

First, let's clarify what this does not represent. Many Web3 solutions rely on a certain asset to provide an "economic safety net" for another type of business. A typical example is the universal design logic of oracles, where decentralized autonomous organizations (DAOs) vote to ensure data accuracy, and the oracle outputs prices for settling various contract transactions. Projects like Chainlink are variants of this logic.

The premise for such mechanisms to work is that the total market cap of the DAO governance tokens must be significantly higher than the transaction scale settled through that oracle. The reasoning is simple: if it only takes $1 million to control the DAO but can manipulate contract settlements worth $10 million, this system is economically unsafe. This is not due to technical vulnerabilities in the code, but rather flaws in the design of economic incentives, allowing malicious actors to manipulate the system at low cost for self-serving outcomes that violate objective fairness.

However, Ethereum does not provide any economic safety backing for USDT. USDT is issued and circulated on dozens of public chains, such as Tron, which also cannot back USDT. Theoretically, even if someone were to attack a public chain that issues USDT, achieving double spending or seizing others' tokens, the USDT operating company, Tether, can directly freeze and recover the tokens on-chain and reissue them on other chains.

Regardless of whether the total market cap of that public chain is $1 or $1 trillion, Tether can complete the operation: it only needs to pay the on-chain transfer fee to fully control the disposal rights of the tokens. Even if an attacker completely controls the entire public chain and blocks Tether's official contract interactions, the project team can simply abandon that chain and refuse to redeem all USDT on that chain. At that point, the team can ensure that innocent users can redeem their assets on other chains through hard forks or offline ownership certificates, with the entire process arranged by Tether. Controlling the public chain does not allow access to the dollar reserves held by Tether.

It is undeniable that USDT needs to rely on public chains for circulation, so the market requires a number of stable and usable underlying networks that meet safety standards. But that is all; the core subject of asset safety remains Tether. As long as there are reliable public chains in the market, USDT can circulate normally. The standard for a reliable public chain is generally that its native token has a considerable market cap. However, the market cap of the native token does not provide substantial safety guarantees for stablecoins, so it is entirely possible for a public chain with a native token market cap of only a few billion or even a few hundred million dollars to carry a circulation of stablecoins worth hundreds of billions. If a public chain's native token has a total market cap of only $1 million, it is difficult to support a mature DeFi ecosystem, and users would not be willing to store billions of USDT on it; but as long as users are willing, there are no hard barriers from a safety logic perspective.

This does not imply that Ethereum itself has flaws

The rising market cap of USDT relative to Ethereum does not indicate that Ethereum's value is damaged. Indeed, the increase in USDT's market cap represents a greater demand for stablecoins from larger users, but this does not mean that the demand for USDT exceeds that of the Ethereum ecosystem.

USDT is a value storage tool backed by the reserves of the issuer; whereas ETH tokens are essentially certificates of future earnings from the block space of the entire Ethereum network. Even if the market is extremely optimistic about Ethereum, the network's expansion leading to a surge in block space supply and lower transaction fees will also suppress ETH prices; conversely, a large amount of USDT usage will only increase the total issuance of USDT and will not change the pricing of USDT at $1 per token.

Users choosing to store funds in USDT is completely unrelated to Ethereum's competitiveness as a Web3 underlying platform or its development prospects. We can intuitively understand this through two extreme hypotheses: in both scenarios, USDT's market cap could far exceed Ethereum's, but Ethereum's situation would be vastly different.

Scenario One: The market essentially abandons Ethereum, and a better underlying public chain emerges, causing ETH prices to plummet, yet users continue to use USDT for transfers frequently.

Scenario Two: Ethereum achieves significant technological breakthroughs (such as innovations in layer two architecture or the maturity of zero-knowledge proof technology), leading to a dramatic increase in the network's expansion capacity, ample block space supply, and a significant drop in transaction fees.

Both situations would lead to a shrinkage in Ethereum's market cap, and at this point, USDT's market cap could either soar or fall, entirely depending on user demand for stablecoins. The changes in USDT's scale are not bound to the quality of Ethereum itself.

The key lies in real application demand

The most essential scenario in Web3 is permissionless dollar transfers. Four years ago, we analyzed the unique value of this scenario, and to this day, it has become the most core application in the crypto industry.

There is an old saying in the industry: many people claim to be optimistic about blockchain technology, but in reality, they only care about the flow of funds. The permissionless dollar transfer track has accumulated massive amounts of capital, but this scenario has very low technical threshold requirements and does not require complex protocols or advanced cryptography support. USDT was originally issued based on Bitcoin's sidechain Omni, which can be simply understood as the issuer selling Bitcoin token certificates in exchange for dollars, and users redeeming dollars with the certificates. Although the logic is not entirely the same, the core is similar. By relying solely on Bitcoin's underlying technology, a usable stablecoin can be built with minimal code: defining a batch of smart contracts corresponding to the dollar redemption amount and ensuring that the reserve funds are adequately managed can achieve the basic functions of a stablecoin.

The core of this scenario's implementation is having a trustworthy issuer; permissionless decentralized stablecoins generally have various defects. However, by layering the issuer's credit on top of Bitcoin's simple underlying technology, it can meet transfer needs without requiring high-end technology. USDT is merely a set of logically simple smart contracts, and the technology itself does not present barriers.

This also explains the value differentiation among major public chains. Ethereum is currently the most mainstream smart contract public chain, but any public chain that can operate normally is sufficient to support stablecoin issuance. The flow of stablecoin funds to which chain is unrelated to the overall market cap ceiling of USDT. Stablecoins have very low performance requirements for public chains, and the underlying architecture of reserve-based stablecoins has not undergone substantial iterations for years.

If we were to discuss the market cap of Tether on Ethereum, Tron, Arbitrum, or other blockchains, it might reflect the relative value of these blockchains. If permissionless dollar transfers are the core demand of the industry, public chains that excel in supporting this scenario are more likely to attract capital and accumulate large amounts of USDT. Major public chains can compete with each other, but as long as stablecoins themselves have utility value, the overall market cap of USDT can continue to expand.

Ethereum is currently the highest-valued smart contract public chain, and using it as a benchmark can roughly measure the overall scale of the entire contract public chain track. Currently, Bitcoin occupies about 60% of the total crypto market cap, and excluding stablecoins, Ethereum accounts for half of the remaining market, with all other public chains dividing the other 50%. Rough estimates suggest that the total value of all smart contract public chains is about twice that of Ethereum's market cap. For many years, the overall market cap of this track has been stagnant; however, the scale of the stablecoin sector, led by USDT, has continued to surge.

Looking at individual blockchains, the market cap of stablecoins may grow or may not grow. But from a macro perspective, years of data have proven that there is no positive correlation between the market cap of native tokens of public chains and the overall scale of stablecoins.

There is more data and products to prove this. BlackRock's BUIDL tokenized currency fund and Circle's USDC are all competitors to USDT, but these products hardly bring value gains to the public chains they are issued on. The most straightforward fact is that the scale of stablecoin-related products has been expanding year after year, while the market cap of native tokens of underlying public chains has been long stagnant.

Conclusion

There is a consistent narrative here. The core demand of users is permissionless dollar assets, and they are willing to trust the stablecoin issuer, even indifferent to the background details of the issuer. Objectively speaking, USDT's offshore background and reserve transparency controversies are numerous, and its credit backing is far inferior to that of BlackRock or PayPal, yet USDT's scale is far ahead.

Traditional financial giants have successively entered the stablecoin track, promoting their strong brand advantages, yet they have never been able to take mainstream market share from USDT. Only USDC has a certain scale, but it has long lagged behind USDT and has faced multiple redemption crisis-related incidents in the past, making it difficult to break into the top tier in the long run.

For ordinary users, as long as the tokens circulate widely and transfers are convenient, who the issuer is does not matter; the governance model of the underlying public chain will not affect user choices either. Even if the public chain's tokens are highly centralized and controlled by a single entity (like Tron); managed for years by multi-signature wallets (like Polygon); claiming to be self-custodial but having a security committee with asset freezing powers (like Arbitrum); or having a complex structure operated by a single company without complete transparency to regulators (like Base), users will still use them as usual.

The only core demand of users is permissionless dollar transfers. Currently, USDT has been launched on 14 public chains, while USDC covers over 30. Issuers will actively layout on any public chain where users gather; the issuer does not care about the underlying network, and users do not care either.

In the entire crypto industry, the only assets with real brand recognition are Bitcoin and USDT, followed by USDC. Users will use these stablecoins on any public chain. A stablecoin launched by an offshore background issuer with questionable credit can grow to become the second-largest digital asset; and it primarily circulates on a public chain, Tron, controlled by a single individual. All of this indicates that users are more concerned about the use case of permissionless dollars rather than the operational mechanisms behind it.

If regulatory agencies in various countries issue compliance licenses for permissionless dollar stablecoins, it would mean that the permissionless transfer model has received official recognition. As long as compliant, offshore stablecoins receive regulatory backing, the entire sector's scale will continue to expand, potentially far exceeding the smart contract public chains that support them.

Disclaimer: This content is provided for general branding and informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online events, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets or to use any services. Crypto assets are highly volatile and may result in loss. WEEX services and online events may not be available in all regions and are subject to applicable laws, regulations, and eligibility requirements. You are responsible for ensuring that your use of WEEX services complies with local laws and for carefully assessing the risks before participating in any crypto-related activities.