This was the most shocking thing I’ve read this year in crypto.
USDT is the most popular crypto in Iran and it’s primarily used on the Tron blockchain….
Huh?? What in His Excellency Justin Sun?
Shocking (but not really… more on that later). A dollar based product is more popular than Bitcoin in a country where the IRGC is the largest miner of BTC. Bitcoin maximalists in disbelief that normie under sanctions eschew the most decentralized currency in favor of Tether on a quasi-centralized ETH clone. Very strange indeed.
When digging deeper though, it makes a lot of sense.
Tether is a private offshore dollar that is free of the influence of the United States and its many, many three letter agencies. It’s valuable without being political. After reading Ameen’s tweet, I tried to put together a “fiatcoin (dollar) trilemma;” include is globally accepted, free of political influence, anonymous digital cash. Tether is borderline qualifying for all three characteristics at the moment. It’s no wonder that regulators and politicians are doing their damndest to shut Tether down.
“Dollars'' are a nebulous term representing many different forms of money. I like to think of the “Dollar” as whatever current debt-based global reserve and transaction currency is at the current moment. It doesn’t really matter whether we call it the Pound, or Yuan, or Euro. The “Dollar” is a system of money, and more importantly the financial system built on top which makes the global economy function. The US dollar was selected as the best choice for this purpose because of the independence, safety, security of our Banks and additionally the strong legal protections for all parties found in US courts. Throw in post-WW2 strength and its no wonder the dollar achieved its current position. There just is no second best.
Even in crypto networks the only currency that anyone wants to really hold are dollars. Stablecoin supply growth has gone from 1bn in 2020 to a peak of 200bn before the LUNA crash. Stablecoins are the “killer app” of crypto.
Dollar access and control are the reason that crypto exists in the first place. Hard money advocates and libertarians had tried for decades to create functional private dollar replacements that could eschew politics. Money is inherently political and pre-Bitcoin, the United States used its powerful banhammer to annihilate any upstart private currencies.
Liberty Reserve was the last “private offshore dollar” to exist before Bitcoin was shut down. In a post 9/11 world, it stood no chance of surviving against the Bank Secrecy Act, which requires all money dealers to hold a special license and collect KYC on all of their customers. For Liberty Reserve, all that was needed to set up an account was name, e-mail address, and birth date. Billions of dollars were transacted by a global set of 1 million users, but the system itself was centralized and was easily shutdown in 2013 on charges of money laundering. For his crimes against the US, CEO Arthur Budovsky was sentenced to 20 years in prison for one count of conspiring to commit money laundering.
Ten years later, we now have a decentralized private dollar (USDT) which enables the entire crypto ecosystem to function, is responsible for trillions of annual volume, and interestingly, is a highly sought after asset in US sanctioned countries. Tether itself has been at the center of many controversies, yet it emerged and grew into a behemoth. Tether executives are not in jail, no charges are pending against them, the US has yet to prosecute Tether for anything illegal pertaining to BSA, AML or KYC laws.
Tether’s genius strategy revolves around “how” it distributes its tokens. Unlike Liberty Reserve, which acted as a quasi-bank with its own currency, Tether provides no accounts for its customers or holders. Unless you are an exchange, large OTC desk or institutional client, redeeming and minting USDT directly is out of the question. USDT is available to purchase from a network of brokers who make fees from swaps. It’s the brokers job to perform KYC and ensure the sales do not violate any international laws.
Binance, as the largest crypto exchange in the world, is the top broker of USDT. Binance also is embroiled in a lawsuit that it allowed $7.8bn flow to Iranian trading firms and users. “Three-quarters of the Iranian funds that passed through Binance were in a relatively low-profile cryptocurrency called Tron'' Reuters reported.
Tron was chosen for two primary reasons. First its low transaction fees. Sending money on Tron costs less than a penny, while on Ethereum transactions cost $2-3 dollars in low gas conditions. Tron is even cheaper than most L2s on Ethereum. So while Tron’s security budget might be lacking, low fees make up for it. Second, and most importantly, Tron enabled zk-SNARK transactions in 2020, allowing developers to add shielded transaction feature. A move that HRE Justin Sun said would “protect user data with the strongest privacy protection in the industry.” ZK tech allows for any user to have private, anonymous transactions if they choose, shielding their history and breaking the chain of custody. Unlike ZCash, privacy is attained at the smart contract level, and not for TRX. USDT can flow freely and be layered.
Private ZK tech on its own was not enough to drive Tron adoption in Iran, Monero, Zcash, and other privacy coins all failed to have significant impact on the market. It was only when a stable dollar substitute was introduced that adoption kicked off. Now Tether is a core part of the Iranian economy.
ZK is poised to eventually come to ETH at some point in the future. Privacy is dearly needed at the L2 level for ETH based assets. The model has been proven for Tron based assets. Maybe this is where Frax’s L2 can shine? Private, stable transfers with instant finality for free?
Crypto is and will always be a response to dollar shortages, access, and control. Eventually market forces will demand a non-political stable unit of account that is widely used globally. Post-9/11 the United States weaponized the dollar to punish and cajole its allies and enemies abroad. In a perfect world, the US as the global hegemony would be a fair harbinger of power, but reality has proved otherwise. As stablecoin regulation in the US and Europe harps on the horizon, the question remains how legislators will act in the face of technology that threatens their monopoly over the flow of money.