Tether USDT expands its stablecoin empire from USDT0

Compiled: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 bridged versions of USDT exist on more than 80 blockchains, introducing additional risks and management challenges due to 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 Legacy Mesh and Bitcoin sidechain Plasma, which support Arbitrum, aiming to unify liquidity and build a dedicated ecosystem.

• As stablecoin issuers expand, interoperability has become the first step to expansion. LayerZero provides customizable infrastructure and a wide range of blockchain support, becoming the main entry point for this cross-chain growth strategy.

  

Foreword

USDT transforms the US dollar into a global digital asset by bringing it on-chain. It has become the largest stablecoin with a market capitalization of more than $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 80% increase over 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. To maintain growth, USDT has taken a bold approach to expanding 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. Issues with Tether USDT’s expansion plan

1.1 Tether USDT only supports 12 chains

Source: Tethre Official Knowledge Base | Supported Protocols and Integration Guide

In 2014, Tether’s stablecoin USDT was first launched on the Omni Layer protocol on the Bitcoin blockchain. Over the years, Tether has expanded USDT issuance to other major blockchains, including Ethereum (ERC-20), Tron (TRC-20), Binance Smart Chain (BEP-20), Solana (SPL), and others. 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. Notably, more than 50 of these blockchains have USDT value exceeding $1 million, and 17 of the top 30 blockchains by USDT trading volume rely on bridged versions of the token rather than native support.

When USDT is not natively supported on a blockchain, it means that Tether does 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 the problem 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 backed 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. While redemption may still be possible for a limited time, new USDT tokens are no longer issued on these networks.

While 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 native tokens.

1.2 Bridged USDT is increasing

Source: Tether: Circulation and Statistics - DefiLlama

The current circulating supply of USDT on Ethereum is about 64.94 billion US dollars, of which about 8 billion US dollars of USDT has been bridged to other blockchains. For example, on Binance Smart Chain (BSC), about 5.2 billion US dollars of USDT have been minted through the BSC bridge. Additionally, 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 the USDT it issues on its natively supported networks. Once USDT is bridged to other chains via a third-party bridge, Tether loses direct custody of those tokens. This fragmentation makes it increasingly difficult for Tether to track total supply, ensure compliance, and manage the risks posed by an expanding network of blockchains and bridge protocols.

Ultimately, while the rise of bridged USDT enhances liquidity and interoperability in the crypto ecosystem, Tether, as the issuer, also faces 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 main 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 activities - USDT alone accounts for more than 98% of the stablecoin supply on the Tron network, covering almost all transaction volume.

Currently, the total stablecoin market cap on Tron is $71.5 billion, with USDT dominating with over $70.9 billion in circulation, far outstripping other stablecoins like USDD, TUSD, and USDC, which only account for a small fraction of the market. This dominance is so complete 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 over $2.5 billion in annual fee revenue 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 the 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 Tether-operated chain, it could redirect network activity and fee revenue to its own ecosystem.

Such a 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 would unlock new revenue streams and increase 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 dominance 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 vs. Vertical Scaling

There are two potential solutions to the problems facing 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 with LayerZero OFT

Source: LayerZero Scan

Tether launched its multi-chain version of USDT, called USDT0. The token now uses LayerZero's OFT token framework to easily expand to other blockchains or Rollups. Since its launch a month ago, its total locked value (TVL) circulating supply is $971 million and total cross-chain transactions have exceeded $3 billion. It is now cheaper than ever to send USDT across different blockchains.

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 burn 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 with the approval of the infrastructure operated by the issuer USDT0.

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 a DVN route 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 achieves vertical expansion 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 acts 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, while Legacy Mesh creates a cohesive ecosystem for stablecoins on established and emerging blockchains.

The second initiative, Plasma, takes a bolder approach, building a Bitcoin sidechain focused on payment efficiency. From day one, USDT0 will be supported on Plasma and maintain direct connections with 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 backbone, while Plasma optimizes transaction throughput and grows its own dapp ecosystem. This synergy allows USDT to expand its influence in both liquidity and application.

Source: "Introducing Legacy Mesh: Your USDT is now everywhere, anytime" — USD₮0

3. Interoperability is the "first step" of the stablecoin expansion strategy

Stablecoins make fiat currencies semi-global currencies, while interoperability makes stablecoins truly global currencies. As the blockchain ecosystem expands to more than 300 networks, the use cases and user base of stablecoins have become 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 prime example is Wyoming Stablecoin (WYST), the first fully-reserve, state-issued stablecoin in the United States. By partnering with LayerZero and adopting its OFT standard, WYST can be issued and used on multiple major blockchains, including Ethereum, Avalanche, Solana, and more. 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 to cross-chain expansion, enabling issuers to efficiently enter new markets and use cases.

Source: "Accelerating the Development of Asian Stablecoins through Interoperability" | Four Pillars