Tether and digital U.S. dollars
So, the word is out: USDT (Tether) is heading to Bitcoin and Lightning through Taproot Assets. Unsurprisingly, this news has sparked a range of reactions.
It seems a lot of folks think it’s a positive move for Bitcoin – and honestly, that was the majority sentiment in a quick poll I ran on X (Twitter). Now, I know, I know, my little X survey isn’t exactly statistically significant. But hey, I’m sharing the results anyway!
Tether (USDT) on Bitcoin and Lightning is:
(Please share why in the comments and please RT after you vote.)— Frank Corva (@frankcorva) February 13, 2025
However, there’s another camp out there, and count me in that group – I’m just not feeling the excitement about this USDT development.
With that said, I’ve genuinely tried to keep an open mind about it all.
To that end, I even recently sat down with Jesse Shrader, the CEO and co-founder of Amboss. Amboss, for those who don’t know, builds smart payment systems for Lightning transactions. Jesse’s actually a big believer in bringing USDT to Bitcoin and Lightning, so I figured talking to him would help me understand what potential benefits I might be missing when it comes to using digital U.S. dollars on Lightning.
During our chat, Jesse made some really interesting points, including:
- He highlighted how widespread USDT has become, proving there’s a real global demand for digital U.S. dollars.
- He pointed out USDT’s massive scale as a payment method. In 2024 alone, it processed over $10 trillion in payments – surpassing even MasterCard! He believes a chunk of those payments will now find their way onto the Lightning Network.
- Jesse argued that USDT will inject much-needed liquidity into the Lightning Network, which in turn will help it grow stronger and handle larger transactions.
Looking at it from a purely business standpoint, it’s tough to argue against these points as solid reasons for bringing USDT to Lightning. And, as someone who fundamentally believes in people’s freedom to choose what money they use, I can’t really disagree with the practical logic.
Still, I can’t shake the feeling that bringing USDT to Bitcoin and Lightning comes with a cost, and that cost has a couple of angles.
One part of that price tag is technical, while the other is more about the core principles of Bitcoin.
Technically speaking, running USDT on Bitcoin and Lightning could actually introduce some risks to Bitcoin’s security.
Imagine another major Bitcoin split, something like the Blocksize War we went through before. If that happened, big economic players in the Bitcoin world, like Coinbase (who manage a lot of the Bitcoin backing those U.S. spot Bitcoin ETFs), might decide to throw their weight behind the “Tether fork” of the network. This “Tether fork” could also incorporate other changes that, down the line, could undermine Bitcoin’s security.
Basically, if heavy hitters like Coinbase, Tether, and a few others in the Bitcoin space push hard for this “Tether fork,” it’s likely other big economic nodes would fall in line.
And get this – anyone actually using USDT on Bitcoin and Lightning would probably have to side with that fork too, because any USDT left on the “non-Tether fork” chain would likely become worthless.
Lyn Alden touched on this very issue in her insightful essay “Proof-Of-Stake And Stablecoins: A Blockchain Centralization Dilemma.”
She wrote that “custodians can nullify the value of all stablecoins on whichever side of the fork they don’t view as the correct one.”
Now, she was mainly talking about smart contract platforms like Ethereum and Solana, which lean heavily on DeFi and stablecoins. But this same principle would apply to Bitcoin too. (And Lyn Alden’s point proved to be spot on when Ethereum transitioned from Proof-of-Work to Proof-of-Stake during “The Merge” in 2022.)
After the Merge, stablecoin issuers like Circle and Tether only continued supporting their tokenized U.S. dollars on the new Ethereum chain – not on EthereumPoW (ETHW), which was the older chain still running Proof-of-Work.)
A similar scenario could absolutely unfold with Bitcoin in the event of a chain split, potentially giving Tether an uncomfortable amount of influence over Bitcoin.
Beyond the technical concerns, my other issue with USDT on Bitcoin is more of a philosophical one.
Bitcoin, after all, was born in the aftermath of the Great Financial Crisis of 2007-2009. It was created as a direct alternative to the U.S. dollar.
Back then, the dollar was being printed like crazy – essentially devalued – to bail out the very banks that triggered the crisis.
Bitcoin, as a money that can’t be inflated on a whim by governments or central banks, was meant to compete with the U.S. dollar, not prop it up.
So, bringing USDT – a tool that, in my view, the U.S. government uses to maintain its dollar’s global dominance – to Bitcoin just feels… morally wrong to me. And frankly, I’m not on board with it.
Look, on a practical level, I understand why some are excited about USDT coming to Bitcoin and Lightning. I just think a lot of people are missing the bigger picture. By embracing USDT, we might be inadvertently putting Bitcoin in a vulnerable position and, perhaps even just for a while, overshadowing a core part of what makes Bitcoin so valuable in the first place: its independence from the traditional financial system.
