Binance Crypto Exchange Switches to Ethereum-Based Tether (USDT)

By July 3, 2019Ethereum
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Binance may trigger an evolution in one of the most influential stablecoins, Tether (USDT). On Wednesday, Binance announced it would switch to ERC-20 addresses for USDT, closing all Omni withdrawals.

The lockdown of Omni-based USDT will start on July 4 as of 8 AM UTC. At that time, switching wallets will disable all USDT withdrawals and deposits for 30 minutes. From that date onward, traders will be able to deposit Omni-based USDT, but not withdraw the coins.

The decision confused traders, as Binance was one of the hubs for trading stablecoins. USDT had the one advantage of being freely movable and accepted by all markets. In effect, Binance locks down the current Omni-based coins.

According to the Tether rich list, Binance holds close to 300 million USDT - a significant decline from the peak levels of 800 million USDT. The stablecoin has been circulating through the ecosystem, landing on new exchanges as demand from Chinese traders increased in the past months. Binance distributed its USDT from one large wallet to a handful of smaller ones, and it is difficult to discover all the new addresses.

In theory, using the Ethereum network for USDT may be cheaper and faster. But this may also create a liquidity constraint, as ETH-based USDT may not be accepted everywhere. There are currently 1.1 billion USDT minted on the Ethereum network, up from 600 million a few weeks ago. On the Omni layer, more than 3.6 billion coins were minted and are in circulation right now.

USDT reached a low of just 2 billion coins in circulation in the fall of 2019, leading to one of the lowest BTC prices around $3,200. A new bull market for BTC started as USDT supply increased. Only in June, the network added half a billion new coins, boosting one of the biggest rallies for 2019.

Binance’s move mystified investors, and the real motivations are yet to be seen. With the new standard, potential fees may be lower. But the move may also mean Binance will see a slower outflow of USDT, potentially boosting its liquidity.

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