USDT has solidified its position as the dominant stablecoin, with its market capitalization surging from $80 billion to $144 billion over the past year. However, its market share has declined from 70% to 61% as other stablecoins continue to expand. Tether’s strategy now involves both horizontal and vertical expansion to maintain its leadership, including the introduction of a multichain token, USDT0, powered by LayerZero’s OFT standard.
The Rise of Tether’s USDT
Tether’s USDT has revolutionized digital finance by bringing the U.S. dollar on-chain, transforming it into a global digital asset. With a market cap exceeding $140 billion, it remains the largest stablecoin despite past rumors of insufficient collateralization. Its growth has been remarkable, expanding by 80% in the past year alone.
However, as the stablecoin market matures, competition has intensified. Rival stablecoins have gradually captured market share, prompting Tether to adopt innovative strategies to sustain its growth. One of the key initiatives is enhancing cross-chain interoperability to ensure USDT remains accessible across diverse blockchain ecosystems.
Challenges in USDT’s Expansion
Limited Native Blockchain Support
Tether natively supports USDT on only about 12 blockchains, including Ethereum, Tron, Solana, and Binance Smart Chain. While this covers major networks, DeFiLlama data shows that USDT appears on over 80 blockchains. More than 50 of these host over $1 million in USDT, and 17 of the top 30 chains by USDT volume rely on bridged versions rather than native support.
Bridged USDT introduces additional risks. When USDT is not natively supported on a blockchain, third-party bridges lock native USDT on supported chains and issue wrapped or bridged versions on other networks. The security and reliability of these bridged tokens depend entirely on the bridge operators, not Tether. If a bridge is compromised, users could lose their assets, with no recourse from Tether. Only natively supported USDT can be directly issued and redeemed by Tether.
Moreover, Tether has discontinued USDT issuance on several blockchains, including Bitcoin’s Omni Layer, Kusama’s AssetHub, and EOS, due to low usage or security concerns. While redemptions may remain available for a limited time, new USDT is no longer minted on these networks.
Growing Reliance on Cross-Chain Bridges
Ethereum hosts approximately $65 billion in USDT circulation, but about $80 billion worth of USDT has been bridged to other blockchains. For example, Binance Smart Chain holds around $5.2 billion in bridged USDT. Major Layer 2 networks like Arbitrum, Polygon, and Optimism operate native bridges for USDT transfers, while other Layer 1 chains such as Fantom and Sui rely on third-party bridges.
This reliance on bridges presents significant management challenges for Tether. The company can only directly monitor and control USDT on natively supported networks. Once USDT is bridged to other chains, especially via third-party bridges, Tether loses direct oversight. This fragmentation complicates supply tracking, compliance, and risk management across an expanding array of blockchains and bridge protocols.
Value Drain to Tron
Stablecoins are the backbone of on-chain finance, serving as the primary medium for settlements, trading, and lending. This is especially evident on Tron, where stablecoin-related transactions dominate on-chain activity. USDT alone accounts for over 98% of the stablecoin supply on Tron and drives the majority of transactions.
Tron’s total stablecoin market cap is $71.5 billion, with USDT comprising over $70.9 billion. This dominance is so absolute that Tron can be described as the “USDT chain,” with 98% of transaction fees and 99% of transactions driven by USDT transfers. As a result, Tron earns over $2.5 billion annually in transaction fees from this activity.
This raises a critical question: What if Tether launched its own blockchain? By capturing transaction fees and ecosystem value currently accumulated by Tron, Tether could internalize this revenue. If major centralized exchanges holding approximately 30% of USDT on Tron migrated to a Tether-operated chain, it would redirect network activity and fee income to Tether’s ecosystem.
Such a move could reshape stablecoin infrastructure economics. Exchanges and users might benefit from lower fees, faster settlements, and potential rewards for early adoption. For Tether, it would unlock a new revenue stream and strengthen control over the stablecoin landscape.
Tether’s Expansion Strategy: Horizontal and Vertical Growth
Tether is addressing these challenges through a dual strategy: horizontal expansion across existing blockchains and vertical integration by owning more of the infrastructure stack.
Horizontal Expansion with USDT0 via LayerZero OFT
Tether has introduced USDT0, a multichain version of USDT that leverages LayerZero’s OFT (Omnichain Fungible Token) standard. This enables seamless cross-chain transfers and expansion to additional blockchains or rollups. Since its launch, USDT0 has achieved a total value locked (TVL) of $971 million and facilitated over $3 billion in cross-chain volume.
LayerZero’s OFT standard allows tokens to be locked or burned on the source chain and minted on the destination chain. For USDT0, native USDT on supported chains like Ethereum, Tron, and TON is locked, and USDT0 is minted on unsupported chains like Arbitrum and Optimism. For transfers between unsupported chains, a burn-and-mint mechanism is used. This simplifies supply management across networks and reduces the need for native support.
LayerZero enables “issuer-aligned interoperability,” where cross-chain operations for USDT0 are validated by two entities: the USDT0 DVN (Decentralized Verification Network) and the LayerZero DVN. Cross-chain transfers only occur when approved by USDT0’s infrastructure.
To support new chains, two conditions must be met: LayerZero must support the chain, and the team must establish or support a DVN route. With LayerZero currently supporting around 131 mainnets, including most major networks, USDT0’s expansion is now a strategic decision rather than a technical hurdle.
👉 Explore cross-chain strategies for stablecoins
Vertical Expansion with Legacy Mesh and Plasma
Tether is also pursuing vertical integration through two key initiatives: Legacy Mesh and Plasma. Legacy Mesh acts as a central network connecting existing USDT deployments with USDT0, enabling seamless transfers between chains that lack native USDT support. Arbitrum serves as a hub, aggregating liquidity pools and using LayerZero’s messaging protocol to facilitate transfers.
This allows users to move assets seamlessly between Ethereum, Tron, and TON to USDT0-supported networks like Arbitrum and Berachain. By connecting with Ethereum, Tron, and TON, Arbitrum unifies 98% of USDT supply, creating a cohesive ecosystem for stablecoins across established and emerging blockchains.
The second initiative, Plasma, takes a bolder approach by building its own blockchain as a Bitcoin sidechain focused on payment efficiency. USDT0 will be supported on Plasma from day one and maintain direct connectivity with USDT on Ethereum, Tron, and TON.
Together, Legacy Mesh and Plasma create a comprehensive hub for USDT liquidity and ecosystem development. Arbitrum serves as the liquidity backbone, while Plasma optimizes transaction throughput and fosters its own dApp ecosystem. This synergy expands USDT’s reach in both liquidity and application development.
Interoperability: The First Step in Stablecoin Expansion
Stablecoins have transformed fiat currency into a semi-global digital asset, but interoperability is making them truly global. As the blockchain ecosystem expands to over 300 networks, stablecoin use cases and user bases are increasingly fragmented. For stablecoin issuers, focusing solely on a single chain may work initially, but long-term growth depends on cross-chain strategies that enable seamless movement across multiple blockchains.
A prime example is the Wyoming Stablecoin (WYST), the first fully reserved, state-issued stablecoin in the U.S. By partnering with LayerZero and adopting its OFT standard, WYST can be issued and used on several major blockchains, including Ethereum, Avalanche, and Solana. This interoperability expands WYST’s user base, reduces operational costs, and improves the experience for institutions and individuals transacting across different networks.
The WYST case highlights a broader industry trend: interoperability strategies must go hand-in-hand with issuance strategies. As stablecoins strive for wider adoption, LayerZero’s customizable infrastructure and extensive chain support are becoming a gateway for cross-chain expansion, enabling issuers to efficiently enter new markets and use cases.
Frequently Asked Questions
What is USDT0?
USDT0 is Tether’s multichain version of USDT, powered by LayerZero’s OFT standard. It enables seamless cross-chain transfers and expands USDT’s availability to blockchains without native support. USDT0 simplifies supply management and reduces reliance on third-party bridges.
How does bridged USDT differ from native USDT?
Bridged USDT is issued by third-party bridges locking native USDT on supported chains and minting wrapped versions on other networks. Its security depends on the bridge operator, not Tether. Native USDT is directly issued and redeemable by Tether on supported blockchains, offering higher security and reliability.
Why is Tether expanding vertically with Legacy Mesh and Plasma?
Vertical expansion allows Tether to capture more value from its ecosystem by owning infrastructure like liquidity hubs and dedicated blockchains. Legacy Mesh unifies USDT liquidity across chains, while Plasma focuses on payment efficiency and dApp development, strengthening Tether’s control over its stablecoin environment.
What role does LayerZero play in USDT’s expansion?
LayerZero provides the interoperability infrastructure for USDT0, enabling cross-chain transfers via its OFT standard. Its extensive blockchain support and customizable validation networks make it a strategic partner for Tether’s horizontal expansion across new networks.
How does USDT’s market share compare to other stablecoins?
USDT’s market share has declined from 70% to 61% over the past year as other stablecoins like USDC and DAI expand. However, USDT remains the largest stablecoin by market cap, exceeding $140 billion, and continues to grow in absolute terms.
What are the risks of using bridged USDT?
Bridged USDT carries risks related to bridge security, including hacking and operational failures. If a bridge is compromised, users may lose their assets, with no guarantee of recovery from Tether. Users should prefer native USDT on supported chains whenever possible.