Now, Tether usage in decentralized finance seems to be growing with Aave lending protocol reported more than $7.2 million in USDT locked out of its recorded $60 million in total assets.
That result comes about two months after the first launch of Tether on the platform. The platform offers a wide range of many other stablecoins, including USD Coin (USDC), Dai (DAI), TrueUSD (TUSD), and sUSD.
Tether confirmed that a significant portion of that usage comprises of flash loans. These types of loans do not need collateral as long as it is returned in the same block. The interest rate on depositing Tether ranks highest among its competitors, attracting a 30-day average of 6.2% annual interest.
That rate is considerably higher than DAI’s average of 3.2%. However, it falls behind sUSD’s 8.9% average APY. Currently, all stablecoins attract instant interest rates of about 3.5%.
Tether Enjoys Increased Usage
Aave has rapidly risen through the industry ranks of the DeFi protocols. Currently, the firm is positioned fourth by value based on DefiPulse reports a place behind Compound, its key competitor. On its part, Compound has added USDT through a community governance poll that was enacted on May 1.
Nevertheless, Compound does not let the stablecoin be used as collateral, similar to Aave. Currently, Tether is the most issued and most used stablecoin in the crypto industry. It recently surpassed XRP to take the third spot in the market capitalization rankings.
But, looking at the DeFi ecosystem, USDT has been mainly trailing behind its key competitor, USDC. The DeFi-native Dai stablecoin has also selected USDC as an extra collateral type.
Why Did Tether Drop Way Behind?
It seems like Tether’s reputation among various users is actively preventing its broader adoption in the decentralized finance world. In its discussions to enhance USDC with stablecoins from other providers, the MakerDAO community is deliberately ignoring USDT.
Many members of this community came out stating that USDT:
“seems to have both financial and reputation as risk,” and “they [Tether] are neither transparent nor compliant.”
Although not all users seem to have any problem with it, its highly contentious nature is adequate to prevent more discussions. The CEO of Aave, Stani Kulechov, told reporters that USDC’s initial success is due to Coinbase’s Bootstrap Fund launched in September 2019. The Fund injected USDC liquidity into the system. Stani commented:
“Now that we see more traction for DeFi from Asia, USDT is picking up. Also, the fact that DeFi usage is expanding to non-DeFi cryptocurrency users is strengthening the USDT liquidity.”
When reporters asked if USDT would, in the end, take the top spot in DeFi, Kulechov responded:
“it’s difficult to see who will win overall stablecoin demand at Aave.”
But, he is hopeful that the market will become diverse for stablecoins on the platform.