Stablecoin developer Tether is upgrading from USDT to the new USDT0 standard on Arbitrum, a leading L2 chain. To enhance speed and compatibility, the developer will roll out the stablecoin backed 1:1 by Ethereum-based USDT reserves across multiple chains.
According to the official statement, the migration to the USDT0 standard on Arbitrum that commenced Wednesday, January 29, 2025, will continue until February 5. The new standard uses LayerZero as a control mechanism for the cross-compatible asset. That stablecoin, also launched in Ink, Kraken’s L2 chain, will soon launch on Berachain and MegaETH.
USDT0 standard aims to facilitate seamless cross-chain movements
Arbitrum, a leader among emerging L2 chains, is among the major chains that will facilitate the transition to the USDT0 standard and aims to make the stablecoin compatible with cross-chain movements. Available data shows that the protocol carried at least $1.3 billion worth of bridged USDT in the mix of over $5.5 billion of stablecoins it transacted. As the migration progresses, all tokens will be swapped automatically, and users will not have to do anything during the process.
While DeFi users have been assured that they will not have to perform any additional action during the migration, the bridging process between Ethereum and Arbitrum could cause some delays. However, all transactions sent during the seven-day transition period will be settled after February 5, 2025. Tether has facilitated the handoff migration from USDT to the new USDT0 standard in collaboration with Offchain Labs to ensure a seamless transition for all its developers, users, and projects across the Arbitrum DeFi ecosystem.
USDT Faces Shrinking Role in the EU Region
Migration to the new USDT0 standard is happening at a time when the world’s leading stablecoin supplier, Tether, is spreading its wings internationally and into the DeFi ecosystem while its role is slowly shrinking within the European Union region due to emerging MiCA regulations. Currently, USDT retains a supply of 140.7B tokens, and this is after the firms burned a total of 1.9B tokens in the past 30 days.
The new USDT0 standard is expected to function like its predecessor in bridging assets but with better efficiency and higher speeds. The new token will backed 1:1 by the standard ERC-20 USDT on Ethereum but will now move to additional compatible L2 chains like Ink and Berachain without additional bridging and fees. The upgrade was necessitated by the existing liquidity issues associated with a cumbersome bridging that attracted prohibitive fees. However, since the new token is interoperable and works through a new smart contract, the process will be more streamlined even as more chains join the league.
USDT0 is Available on Arbitrum and Ink
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In the interim period, the USDT0 standard will be available on Arbitrum and Kraken’s Ink and will soon be followed by Berachain and Megaeth as several others get on board. The LayerZero technology that the new standard will employ will work as a native multisig bridge that facilitates fast transactions across multiple chains. Moreover, LayerZero is designed to enable smart contracts from different chains to coordinate automatically and burn USDT across various networks.
Conclusion
Arbitrum, together with its sister DeFi protocols GMX and Aave, will now support the new USDT0 standard and help upgrade Tether’s $139.46 billion in USDT net circulation to the new token. The upgrade aims to make Tether more attractive by expanding into L2 ecosystems, where low fees and high speeds are the order of the day. With over $1.3 billion worth of USDT already migrated, it is anticipated that the rest of the migration will also happen seamlessly.
Frequently Asked Questions (FAQs)
What is USDT?
USDT tokens are digital assets backed by cash reserves or equivalents such as US treasury bills. Tether publishes updates on its reserves regularly to promote transparency.
How does USDT work?
Tether’s operations run on a 1:1 reserve model, meaning that for each USDT token, the company holds an equivalent amount of US dollars in reserve. The model guarantees that the token’s value is pegged to the value of the US dollar.
Are USDT and Tether the same thing?
Yes. USDT is the short form of USD-Tether. However, Tether is also the company name, so people have always used the names interchangeably.
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