Tether (USDT) recently rose through the ranks as it replaced XRP as the third highest ranked asset by market capitalization.

It now sits at a total of more than $9 billion in circulating USDT, dwarfing its stablecoin competitors in traded volume and overall supply.

Cointelegraph interviewed Paolo Ardoino, the CTO of Tether and Bitfinex, to get an inside look into the sudden rise.

Half of Tether’s total growth came after the infamous March 12 market crunch, jumping from $4.6 billion to $9.1 billion in the span of a few months. Ardoino revealed that this is not a coincidence.

Old money converting into stablecoins

Ardoino noted that “most of the people think that the majority of the Tethers that got minted to Tether’s customers is definitely new money that is coming into the space.”

But in reality, a sizable chunk of that growth is coming from “money sitting in fiat exchanges that do not support stablecoins,” Ardoino said. OTC desks and trading firms were the primary Tether clients in this transition as they converted their significant fiat holdings into the more flexible Tether.

The slowness of the banking system threw a wrench into the hedging strategies adopted by professional traders on March 12, as he explained:

“You can see that happening after the 12 and 13 of March, because there was a big realization that when the 50% drop in Bitcoin and Ethereum price happened, many hedge funds were not able to hedge their position. [...] Because if you keep your funds in fiat, it's really hard to move those funds quickly enough in order to cover your position.”

Because of that, traders began looking for faster options than holding fiat directly. Part of the demand for USDT also came from the proliferation of derivatives exchanges settling trades in Tether or other stablecoins:

“BitMEX started offering perpetual swaps back in 2014 using BTC as collateral, but now Bitfinex, Binance, Huobi, OkEX, FTX, all are launching all their new products settled in USDT.”

Bitfinex representatives clarified that Ardoino referred to a separate derivatives section offered by iFinex Financial Services Ltd.

Nevertheless, new money has also arrived in the space, Ardoino said. While no percentages were mentioned, there are clearly two separate components to Tether’s growth:

“It’s not all inflows from new crypto market participants [so] that people might think, ‘Okay, the crypto space just got $5 billion more money in dollar terms.’ That is not the full story.”