Coinbase director Conor Grogan has an interesting side hustle as a blockchain sleuth. His latest achievement? Identifying previously unreported USDT minting activity that has upped the known value of the stablecoins minted by Alameda Research to a whopping $39.55B.
But why was the firm minting Tether’s digital dollars in such high volumes?
Accounting Grogan’s latest discoveries, USDT minted by Alameda accounts for 47% of the stablecoin’s circulating supply today.
Of course, it’s hardly surprising that one of the world’s largest crypto-trading entities would need significant amounts of stablecoins. After all, Alameda was FTX’s largest market maker. And at its peak, the exchange was facilitating billions of dollars of crypto trades every day.
However, the numbers reported by Grogan are truly staggering.
For example, he noted that the amount of USDT minted by Alameda is higher than the combined value of all the firm’s assets, even during the crypto market’s 2021 peak.
To understand why Alameda minted so much USDT, it is worth reviewing social media posts made by the firm’s co-CEO Sam Trabucco in 2021.
According to Trabucco, compared to other stablecoins, the creation and redemption process for USDT creates significant arbitrage opportunities for the firms that can mint coins directly.
With only a few organizations plugged directly into Tether’s issuance models, buyers often pay a premium for USDT, which frequently trades above a dollar on exchanges.
As such, Trading firms like Alameda have historically profited from what Trabucco described as a “win-win” situation.
When it traded above a dollar, the company was able to sell USDT on crypto exchanges for more than it paid. Meanwhile, when the exchange price fell below a dollar, the firm could buy USDT at the market price and redeem coins with Tether in near real-time.
However, Trabucco noted that it wasn’t the USDT/USD market where Alameda was making the most money. Rather, Alameda was leveraging inefficiencies in USDT/BTC and other stablecoin markets to maximize its profits.