Legend: The on-chain activity of Tether (USDT) on both the TRON and Ethereum blockchains.
On Monday, June 29th, Tether announced a chain swap.
Tether (USDT) is available on many blockchains, including Ethereum, Tron, Omni, EOSIO and Liquid. A chain swap is the process of moving USDT from one blockchain to another.
On June 29th, Tether announced that a “sizeable amount of USDT” would move from TRON to Ethereum.
That same day, Binance exchanged 300M USDT on TRON, for 300M USDT on Ethereum.
Looking at the on-chain activity of Tether (USDT) on both TRON and Ethereum on June 29th, we can see that Binance sends all of its blue tokens (which are USDT on TRON) to Bitfinex**, and receives the same amount in yellow (which are USDT on Ethereum).
So why did Binance make this swap?
Either TRON stopped paying Binance a premium…
There could be a scenario where the TRON blockchain was paying Binance a premium to have the cryptocurrency exchange keep its supply of USDT on TRON instead of another blockchain. Perhaps they stopped paying that fee on June 29th.
…Or there is demand for ETH Tether for yield farming.
The hottest buzzword in crypto today is “yield farming,” which allows people to earn fixed or variable interest by investing crypto in decentralized finance (DeFi).
Compound and Aave are DeFi’s primary lending and borrowing protocols. They are both built on Ethereum. Accordingly, when looking at the on-chain activity of USDT above, we only see activity in DeFi for USDT on Ethereum (in yellow).
There is currently $977 million in assets supplied to Compound at the time of writing, and $361 million borrowed. This makes it the largest DeFi protocol in terms of total value locked. COMP is its governance token.
The price of COMP has increased over 10x since launch in February 2020. This is fully tied to Compound’s incentive mechanism. Anyone that lends or borrows on Compound earns a certain amount of COMP based on the amount of interest they earn or pay (or both, in most cases). This is on top of the yield of lending a crypto asset.
2,880 COMP tokens are issued to users every day. At $215.55 per COMP at press time, this translates to $620,784 in extra rewards per day. No one expected the price of COMP to increase so dramatically.
This created an important gap between the cost of yield farming and the returns – making it very attractive for investors to game the system.
A week ago, the Compound team put forward a proposal to change how this COMP gets distributed. Starting tomorrow, users will earn COMP on the dollar value of assets they have put in or borrowed, and no longer on interests earned.
Compound’s new distribution rules are likely to drive investors towards stablecoins, to be less exposed to volatility. Since Compound is built on Ethereum, it would make sense for exchanges like Binance to want access to USDT on Ethereum and not TRON. **Bitfinex’s active supply of Tether (on both TRON and Ethereum) doubled with the swap, from 306.5M to 612.1M tokens. IfInex, Bitfinex and Tether’s parent company, explains that they will either burn that extra USDT or retain them for future chain swaps.