Take 2: Why USDT is returning to the Bitcoin ecosystem

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USDT is returning to the Bitcoin

Welcome to the Lightning Network

One of the most significant stablecoin market developments in January was Tether’s unexpected decision to integrate USDT into the Bitcoin ecosystem at both the base layer and second layer—via Lightning Network.

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This integration is being realized through the Taproot Assets protocol, developed by Lightning Labs. The new USDT version promises to become a scalable payment solution, offering features like microtransactions, remittances, and cross-border settlements within the Bitcoin network.

“Tether is committed to driving innovation within the Bitcoin ecosystem. By adding USDT to Lightning Network, we are not only reinforcing Bitcoin’s fundamental principles—decentralization and security—but also creating practical solutions for remittances, payments, and other financial applications that require both speed and reliability,” said Tether CEO Paolo Ardoino.

Why it matters? USDT is the world's most popular stablecoin, accounting for nearly 70% of the stablecoin market. Meanwhile, Bitcoin remains the dominant force in the crypto space, with a market dominance of around 60%. The synergy of these two leaders could set a new financial trend—or turn out to be another failed attempt, as Tether has struggled before to establish a Bitcoin-based stablecoin.

The first attempt

In 2014, Tether launched its first USDT stablecoin on Bitcoin’s blockchain via the Omni Layer protocol. This was a second-layer solution, allowing the creation of digital assets on top of Bitcoin. However, the technology was far from ideal and failed to gain significant traction.

By August 2023, Tether officially discontinued support for Omni, citing low demand and a decline in its adoption. By this time, Ethereum-based (ERC-20) and Tron-based (TRC-20) USDT had already taken the lead due to their low fees and fast transaction speeds.

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From concept to execution

Although Tether abandoned Omni, it never gave up on the idea of a Bitcoin-based stablecoin. In recent years, the company seriously considered launching USDT via RGB—a protocol that operates on top of Lightning Network.

“We strongly believe that RGB will usher in a new era for cryptocurrencies, smart contracts, and digital rights, gaining broad support from major industry players. Once USDT is deployed on RGB, the world will see a stablecoin operating on a powerful and scalable layer,” Tether stated.

According to Paolo Ardoino, RGB has multiple advantages over other stablecoin protocols. It is easily scalable, offers enhanced security, and has strong support from key Bitcoin community members.

However, despite these bold claims, Tether ultimately partnered not with RGB but with Lightning Labs. The reason is simple—Lightning Network is far more popular than RGB, as it is already widely supported by wallets, exchanges, and services.

Lightning Network enables instant, low-cost payments, making it ideal for everyday transactions. In contrast, RGB remains a relatively new and complex technology, which has yet to achieve mass adoption.

Challenges in Europe and future plans

Tether is currently facing regulatory hurdles. While it remains the leading stablecoin issuer, it is experiencing significant challenges due to Europe’s new MiCA (Markets in Crypto-Assets) regulations.

Companies issuing stablecoins must obtain an EU license and comply with strict transparency, reserve, and consumer protection requirements. However, Tether does not meet all regulatory demands.

As a result, several major exchanges, including Crypto.com and Coinbase, have delisted USDT from their European platforms. It is likely that more trading platforms will follow suit.

This wave of delistings has frustrated Tether’s leadership. The company called these moves "premature," arguing that MiCA is still in its early implementation phase. Tether also warned that such delistings could create instability within the European crypto market.

Why Bitcoin-based USDT matters? With mounting regulatory pressure in Europe, Tether is shifting its focus to global expansion. Instead of fighting for a single market, the company is betting on worldwide initiatives.

USDT on Lightning Network has strong potential for success, as demand for fast and cheap transactions continues to grow. Tron-based USDT (TRC-20), while popular, is not always the most cost-efficient. For example, a $1,000 transfer in the TRC-20 network costs anywhere from $1 to several dollars and takes some time. A similar transaction in Lightning Network would cost only a few cents and be instantaneous.

Thus, Tether’s Bitcoin initiative aligns well with its strategy to expand stablecoin adoption in real-world applications. If successful, this new Lightning-based USDT could help Tether strengthen its position in an increasingly competitive and regulated market.

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