Article Author: xparadigms
Article Compiled by: Block Unicorn
Key Points
USDT has become the dominant stablecoin, with its market capitalization growing from $80 billion to $144 billion over the past year, but its market dominance has decreased from 70% to 61% as other stablecoins also expand.
Tether USDT natively supports about 12 blockchains, while bridged versions of USDT exist on over 80 blockchains, introducing additional risks and management challenges due to reliance on third-party bridges and lack of direct oversight from Tether.
Tether addresses scalability challenges through horizontal strategies (such as using LayerZero OFT for cross-chain transfers with the USDT0 multi-chain token) and vertical strategies (such as supporting Arbitrum's Legacy Mesh and the Bitcoin sidechain Plasma), aiming to unify liquidity and build a dedicated ecosystem.
As stablecoin issuers expand, interoperability has become the first step in scaling. LayerZero provides customizable infrastructure and extensive blockchain support, becoming a key gateway for this cross-chain growth strategy.
Introduction
USDT transforms the dollar into a global digital asset by bringing it on-chain. It has become the largest stablecoin, with a market capitalization exceeding $140 billion. Despite facing numerous rumors about insufficient collateral in the past, it has maintained its lead as the dominant stablecoin. As the stablecoin market expands, the market capitalization of Tether USDT 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, leading to a decrease in USDT's market dominance from 70% to 61% over the past year. To maintain growth, USDT has taken bold approaches to expand cross-chain capabilities, from implementing the multi-chain token USDT0 supported by LayerZero OFT to building a hub centered on Legacy Hub and Plasma. Through these methods, they are addressing past challenges.
Let's first look at the issues they face.
1. The Issues with Tether USDT Expansion Plans
1.1 Tether USDT only supports 12 chains
Source: Tether Official Knowledge Base | Supported Protocols and Integration Guide
In 2014, Tether launched its stablecoin USDT on the Omni Layer protocol of the Bitcoin blockchain for the first time. 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 about 12 blockchains. Nevertheless, data from DeFiLlama shows that USDT exists on over 80 blockchains. Notably, USDT on more than 50 blockchains is valued at over $1 million, and among the top 30 blockchains by USDT trading volume, 17 rely on bridged versions of the token rather than native support.
When USDT is not natively supported on a blockchain, it means that Tether will not directly issue or redeem USDT on that chain. Instead, third-party bridges lock native USDT on supported chains and issue corresponding 'wrapped' or 'bridged' versions on the new blockchain. For users, this introduces compatibility issues with the bridged versions and additional layers of risk. The security and reliability of bridged USDT entirely depend on third-party bridge operators rather than Tether itself. If the bridge is hacked or encounters issues, users may lose their 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.
Additionally, due to low usage or security issues, Tether has ceased minting USDT on multiple blockchains. These include the Omni Layer on Bitcoin, AssetHub on Kusama, the Simple Ledger Protocol (SLP) on Bitcoin Cash, EOS's EOSIO.TOKEN, and Algorand. While they may still be redeemable for a limited time, no new USDT tokens are being issued on these networks.
Although USDT appears to be widely available across various blockchains, only a few chains receive native support from Tether. On all other chains, users interact with bridged versions of USDT, which carry additional risks not applicable to the native tokens.
1.2 Bridging USDT is Increasing
Source: Tether: Circulation and Statistics - DefiLlama
Currently, the circulating supply of USDT on Ethereum is approximately $64.94 billion, of which about $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 via 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 USDT movement across chains.
From Tether's perspective, bridging the growth of USDT has brought significant management challenges. Tether can only directly monitor and control the USDT issued on its natively supported networks. Once USDT is bridged to other chains via third-party bridges, Tether loses direct oversight of those tokens. This fragmentation makes it increasingly difficult for Tether to track total supply, ensure compliance, and manage the risks posed by the expanding blockchain and bridging protocols.
Ultimately, while the rise of bridged USDT has enhanced the liquidity and interoperability of 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 pillars of on-chain finance, serving as the primary medium for settlement, trading, and lending. This phenomenon is particularly pronounced on Tron, where stablecoin-related transactions account for the vast majority of on-chain activity—USDT alone represents over 98% of the stablecoin supply on the Tron network, encompassing nearly all transaction volume.
Currently, the total market capitalization of stablecoins on Tron is $71.5 billion, with USDT dominating with over $70.9 billion in circulating supply, far exceeding other stablecoins like USDD, TUSD, and USDC, which account for only a small fraction of the market. This dominance is so thorough that Tron can be referred to as 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 income from these activities.
But this raises a critical question: what if Tether, as the issuer of USDT, launched its own blockchain, capturing not only transaction fees but also the value currently flowing into the Tron ecosystem? Tether has demonstrated the ability to quickly mint and move billions of USDT to meet market demand, frequently adjusting supply between blockchains to optimize costs and efficiency. If Tether incentivized major centralized exchanges (which currently hold about 30% of USDT on Tron) to migrate their USDT holdings to a chain operated by Tether, it could redirect network activity and fee income back into its ecosystem.
This initiative could fundamentally reshape the economic model of stablecoin infrastructure. For exchanges and users, migrating to Tether's native chain could mean lower fees, faster settlements, and potential rewards for early adopters. For Tether, this would 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 settlements, while Tether captures the value currently leaking to third-party blockchains. Given USDT's dominant position in Tron and the broader crypto ecosystem, Tether's opportunity to internalize this value is both significant and increasingly feasible.
2. Tether's Strategy - Horizontal and Vertical Expansion
To address the challenges faced by Tether USDT, there are two potential solutions. The first is to achieve horizontal expansion by implementing better cross-chain strategies across the existing 300+ blockchains and continue to grow. The second is to achieve vertical expansion by having an infrastructure stack to capture more value and provide additional services.
2.1 USDT0 - Horizontal Expansion Using LayerZero OFT
Source: LayerZero Scan
Tether has launched its multi-chain version of USDT, called USDT0. This token now leverages LayerZero's OFT token framework to easily scale to other blockchains or Rollups. Since its launch a month ago, its total locked value (TVL) circulating supply is $971 million, with cross-chain transaction volume exceeding $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 burned on the source chain and minted on another chain. USDT can be locked on natively supported chains like Ethereum, Tron, and TON, and then minted on unsupported chains like Arbitrum, Optimism, and Berachain in the form of USDT0. For transfers between unsupported chains, the system uses a burn-and-mint mechanism. This approach simplifies supply management across different networks while reducing the need for native support.
Source: (USD₮0 Mechanism Design Review) | Chaos Labs
LayerZero achieves 'issuer-aligned interoperability,' with cross-chain operations of USDT0 verified through two real-world validators: USDT0 DVN and LayerZero DVN. This means that cross-chain transfers can only occur with the approval of the infrastructure operated by the issuer of USDT0.
For USDT0 to support new chains, two conditions must be met: LayerZero must support the chain, and the team must find or start supporting the DVN routing for that chain. Currently, LayerZero supports about 131 mainnets, including most major networks, so the expansion of USDT0 is more of a strategic decision than a technical obstacle.
2.2 Legacy Mesh and Plasma - Creating a Hub for USDT
Tether achieves vertical expansion by supporting two key initiatives: building Legacy Mesh for USDT0 and the Bitcoin sidechain Plasma. Legacy Mesh acts as a central network connecting existing USDT deployments with USDT0 (the multi-chain version provided for chains lacking 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, Berachain). With Arbitrum's connections to Ethereum, Tron, and TON, it unifies 98% of the USDT supply, while Legacy Mesh creates a tightly integrated ecosystem for stablecoins across mature and emerging blockchains.
The second initiative, Plasma, takes a bolder approach by building a Bitcoin sidechain focused on payment efficiency. From day one, USDT0 will be supported on Plasma and will maintain a direct connection with USDT on Ethereum, Tron, and TON.
Legacy Mesh and Plasma together create a comprehensive liquidity and ecosystem hub for USDT. Arbitrum serves as a liquidity pillar, while Plasma optimizes transaction throughput and develops its own dApp ecosystem. This synergy allows USDT to expand its influence in both liquidity and application.
Source: (Introducing Legacy Mesh: Your USDT Anytime, Anywhere, Now Everywhere) - USD₮0
3. Interoperability is the 'First Step' in Stablecoin Expansion Strategy
Stablecoins make fiat currencies semi-global currencies, while interoperability makes stablecoins true global currencies. As the blockchain ecosystem expands to over 300 networks, the use cases and user bases for stablecoins become increasingly fragmented. For stablecoin issuers, early focus on a single chain may be effective, but long-term growth and adoption rely on cross-chain strategies that enable their tokens to move seamlessly across multiple blockchains.
A typical example is the Wyoming Stablecoin (WYST), the first fully reserved, state-issued stablecoin in the United States. By collaborating with LayerZero and adopting its OFT standard, WYST can be issued and used across multiple major blockchains, including Ethereum, Avalanche, Solana, and more. This interoperability not only expands WYST's user base but also reduces operational costs and improves the experience for institutions and individuals needing to transact or settle across different networks.
The example of WYST highlights a broader industry trend: interoperability strategies must progress in tandem with issuance strategies. As stablecoins seek greater adoption at scale, LayerZero, with its customizable infrastructure and extensive chain support, is becoming the gateway for cross-chain expansion, enabling issuers to efficiently enter new markets and use cases.
Source: (Accelerating Stablecoin Development in Asia Through Interoperability) | Four Pillars
