Article author: xparadigms
Article translation: Block unicorn
Key Takeaways
- USDT has become the dominant stablecoin, with its market cap growing from $80 billion to $144 billion over the past year, but its market dominance has fallen from 70% to 61% as other stablecoins have also expanded.
- Tether USDT natively supports about 12 blockchains, while the bridged version of USDT exists on more than 80 blockchains, introducing additional risks and management challenges due to its reliance on third-party bridges and lack of direct supervision by Tether.
- Tether addresses scaling challenges through horizontal strategies (such as the USDT0 multi-chain token that uses LayerZero OFT for cross-chain transfers) and vertical strategies (such as the Legacy Mesh that supports Arbitrum and the Bitcoin sidechain Plasma) aimed at unifying liquidity and building a dedicated ecosystem.
- As stablecoin issuers expand, interoperability has become the first step to scaling. LayerZero provides customizable infrastructure and broad blockchain support, becoming the primary entry point for this cross-chain growth strategy.
Preface
USDT transforms the U.S. dollar into a global digital asset by bringing it on-chain. It has become the largest stablecoin with a market cap of over $140 billion. It has maintained its position as the leading stablecoin despite numerous rumors about insufficient collateral in the past. As the stablecoin market expands, Tether USDT's market cap has grown from $80 billion to $144 billion, an increase of 80% in the past year.
While USDT continues to grow, other stablecoins are also expanding, causing USDT's market dominance to drop from 70% to 61% over the past year. In order to maintain growth, USDT has taken a bold approach to expand cross-chain capabilities, from implementing a multi-chain token USDT0 powered by LayerZero OFT to building a hub with Legacy Hub and Plasma at its core. Through these approaches, they are addressing past challenges.
Let's first look at the problems they face.
1. Problems with Tether’s USDT expansion plan
1.1 Tether USDT only supports 12 chains
Source: Tethre Official Knowledge Base | Supported Protocols and Integration Guide
In 2014, the stablecoin USDT issued by Tether was first launched on the Omni Layer protocol on the Bitcoin blockchain. Over the years, Tether has expanded the issuance of USDT to other major blockchains, including Ethereum (ERC-20), Tron (TRC-20), Binance Smart Chain (BEP-20), Solana (SPL), etc. As of early 2025, Tether natively supports USDT on approximately 12 blockchains. Despite this, data from DeFiLlama shows that USDT exists on more than 80 blockchains. It is worth noting that more than 50 of these blockchains have a value of more than $1 million in USDT, and 17 of the top 30 blockchains in terms of USDT trading volume rely on bridged versions of tokens rather than native support.
When USDT is not natively supported on a blockchain, it means that Tether will not issue or redeem USDT directly on that chain. Instead, a third-party bridge locks the native USDT on the supported chain and issues a corresponding "wrapped" or "bridged" version on the new blockchain. For users, this introduces issues of incompatible bridge versions and an additional layer of risk. The security and reliability of bridged USDT depends entirely on the third-party bridge operator, not Tether itself. If the bridge is hacked or has problems, users may lose bridged USDT, and Tether is not responsible for these losses. Only USDT on natively supported blockchains is directly endorsed and redeemable by Tether, so holding bridged USDT means relying on the solvency and security of the bridge.
In addition, Tether has stopped minting USDT on multiple blockchains due to low usage or security issues. These include Omni Layer on Bitcoin, Kusama's AssetHub, Bitcoin Cash's Simple Ledger Protocol (SLP), EOS's EOSIO.TOKEN, and Algorand. Although redemption may still be possible for a limited time, new USDT tokens are no longer issued on these networks.
Although USDT appears to be available on a wide range of blockchains, only a few are natively supported by Tether. On all other chains, users interact with bridged versions of USDT, which carry additional risks that do not apply to the native token.
1.2 Bridging USDT is increasing
Source: Tether: Circulation and Statistics - DefiLlama
The current circulating supply of USDT on Ethereum is approximately $64.94 billion, of which approximately $8 billion of USDT has been bridged to other blockchains. For example, on Binance Smart Chain (BSC), approximately $5.2 billion of USDT has been minted through the BSC bridge. In addition, several major Layer 2 networks — such as Arbitrum, Polygon, Optimism, and Mantle — operate their own native bridges for USDT transfers. Other Layer 1 blockchains, including Fantom, Kaia, and Sui, rely on third-party bridges to facilitate the movement of USDT between chains.
From Tether's perspective, the growth of bridged USDT presents significant management challenges. Tether can only directly monitor and control USDT issued on its native backing network. Once USDT is bridged to other chains through third-party bridges, Tether loses direct oversight of these tokens. This fragmentation makes it increasingly difficult for Tether to track total supply, ensure compliance, and manage the risks posed by an ever-expanding number of blockchains and bridge protocols.
Ultimately, while the rise of bridged USDT has enhanced liquidity and interoperability in the crypto ecosystem, Tether, as the issuer, has also faced new complexities.
1.3 Tether is leaking value to Tron
Source: Tron Gas Usage | Token Terminal
Stablecoins are the backbone of on-chain finance, serving as the primary medium for settlement, trading, and lending. This phenomenon is particularly prominent on Tron, where stablecoin-related transactions account for the vast majority of on-chain activity—USDT alone accounts for more than 98% of the stablecoin supply on the Tron network, covering almost all transaction volume.
Currently, the total market capitalization of stablecoins on Tron is $71.5 billion, of which USDT dominates with more than $70.9 billion in circulation, far exceeding other stablecoins such as USDD, TUSD, and USDC, which only account for a small portion of the market. This dominance is so thorough that Tron can be called the "USDT chain", with 98% of transaction fees and 99% of transactions driven by USDT transfers. As a result, Tron captures more than $2.5 billion in annual fee income from these activities.
But this raises a key question: What if Tether, the issuer of USDT, launched its own blockchain to capture not only transaction fees but also ecosystem value currently flowing to Tron? Tether has demonstrated the ability to quickly mint and move billions of USDT to meet market demand, often adjusting supply between blockchains to optimize costs and efficiency. If Tether incentivizes major centralized exchanges (which currently hold about 30% of USDT on Tron) to migrate their USDT holdings to a chain operated by Tether, it can redirect network activity and fee revenue to its own ecosystem.
This move could fundamentally reshape the economic model of stablecoin infrastructure. For exchanges and users, migrating to the Tether native chain could mean lower fees, faster settlement, and potential rewards for early adopters. For Tether, this will unlock new revenue streams and enhance control over its stablecoin environment.
In the long run, this could create a win-win situation: users and exchanges benefit from a layer designed for efficient settlement, while Tether captures value that currently leaks to third-party blockchains. Given USDT’s dominant position in Tron and the broader crypto ecosystem, the opportunity for Tether to internalize this value is both significant and increasingly viable.
2. Tether’s strategy — horizontal and vertical expansion
There are two potential solutions to the problems faced by Tether USDT. The first is to achieve horizontal expansion by implementing better cross-chain strategies on more than 300 existing blockchains and continue to grow. The second is to achieve vertical expansion by owning an infrastructure stack to capture more value and provide more services.
2.1 USDT0 — Horizontal expansion using LayerZero OFT
Source: LayerZero Scan
Tether has launched its multi-chain version of USDT, called USDT0. The token now leverages LayerZero’s OFT token framework to easily scale to other blockchains or Rollups. Since its launch a month ago, its total value locked (TVL) circulating supply is $971 million, and the total cross-chain transaction volume has exceeded $3 billion. Now, the cost of sending USDT across different blockchains is lower than ever before.
This is thanks to LayerZero's OFT standard, which allows tokens to be locked or destroyed on a source chain and minted on another chain. USDT can be locked on natively supported chains such as Ethereum, Tron, and TON, and then minted as USDT0 on unsupported chains such as Arbitrum, Optimism, and Berachain. For transfers between unsupported chains, the system uses a destroy and mint mechanism. This approach simplifies supply management for different networks while reducing the need for native support.
Source: USD₮0 Mechanism Design Review | Chaos Labs
LayerZero implements "issuer-aligned interoperability", and USDT0's cross-chain operations are verified by two entities: USDT0 DVN and LayerZero DVN. This means that cross-chain transfers can only occur when the infrastructure operated by the issuer USDT0 approves it.
For USDT0 to support a new chain, two conditions must be met: LayerZero must support the chain, and the team must find or start supporting DVN routing for the chain. Currently, LayerZero supports about 131 mainnets, including most major networks, so the expansion of USDT0 is now more of a strategic decision than a technical obstacle.
2.2 Legacy Mesh and Plasma — Building a Hub for USDT
Tether is scaling vertically by supporting two key initiatives: building Legacy Mesh and Bitcoin sidechain Plasma for USDT0. Legacy Mesh acts as a central network that connects existing USDT deployments with USDT0 (a multi-chain version for chains that lack native USDT support). Arbitrum serves as a central hub, facilitating inter-chain transfers by aggregating liquidity pools and using LayerZero's communication protocol. This enables users to seamlessly move assets between Ethereum, Tron, and TON and USDT0-supported networks such as Arbitrum, Ink, and Berachain. With Arbitrum's connections to Ethereum, Tron, and TON, it unifies 98% of the USDT supply, and Legacy Mesh creates a tightly coupled ecosystem for stablecoins on mature and emerging blockchains.
The second initiative, Plasma, takes a bolder approach, building a Bitcoin sidechain focused on payment efficiency. USDT0 will be supported on Plasma from day one, with direct connections to USDT on Ethereum, Tron, and TON.
Together, Legacy Mesh and Plasma create a comprehensive liquidity and ecosystem hub for USDT. Arbitrum serves as the liquidity pillar, while Plasma optimizes transaction throughput and develops its own dapp ecosystem. This synergy enables USDT to expand its influence in both liquidity and application.
Source: Introducing Legacy Mesh: Your USDT is now everywhere — USD₮0
3. Interoperability is the “first step” in the stablecoin expansion strategy
Stablecoins make fiat currencies semi-global, while interoperability makes stablecoins truly global. As the blockchain ecosystem expands to over 300 networks, the use cases and user base for stablecoins are becoming increasingly fragmented. For stablecoin issuers, early focus on a single chain may work, but long-term growth and adoption rely on a cross-chain strategy that enables their tokens to move seamlessly across multiple blockchains.
A typical example is Wyoming Stablecoin (WYST), the first fully-reserve, state-issued stablecoin in the United States. By working with LayerZero and adopting its OFT standard, WYST can be issued and used on multiple major blockchains, including Ethereum, Avalanche, Solana, etc. This interoperability not only expands WYST's user base, but also reduces operating costs and improves the experience for institutions and individuals who need to trade or settle on different networks.
The example of WYST highlights a broader industry trend: interoperability strategies must go hand in hand with issuance strategies. As stablecoins seek greater mass adoption, LayerZero, with its customizable infrastructure and broad chain support, is becoming an onramp for cross-chain expansion, enabling issuers to efficiently enter new markets and use cases.
Source: Accelerating the Development of Stablecoins in Asia through Interoperability | Four Pillars
