Introduction
Stable coin, as the name suggests, refers to a cryptocurrency with a stable value. The value of these currencies is usually pegged to fiat currencies such as the US dollar, precious metals such as gold or other cryptocurrencies to prevent fluctuations. In this way, it is possible to benefit from the advantages of blockchain technology while being protected from the volatility of the cryptocurrency market. Stable coins are designed to minimize the risks associated with the volatility of the cryptocurrency market in general. These currencies function as a stable store of value, a transaction tool and a unit of account in the digital world. They are especially preferred when transferring value between cryptocurrencies or hedging against the volatility of the cryptocurrency market. Stable coins play an important role in the cryptocurrency ecosystem. For investors, they provide a hedge against market volatility, while also enabling fast and low-cost transactions. With these features, stablecoins have firmly established themselves in the cryptocurrency world as both a safe haven and a practical means of payment.
What is Tether?
The symbol for Tether, a cryptocurrency pegged to the US dollar, is USDT. This means that USDT is a stablecoin that fluctuates with the US dollar and is backed by Tether’s dollar reserves. USDT is issued by Tether, a company owned by Hong Kong-registered iFinex, which also owns the crypto exchange BitFinex.
As of February 2025, USDT is the fourth largest cryptocurrency after Bitcoin (BTC) and Ethereum (ETH) and the largest stablecoin with a market capitalization of approximately $142 billion. Tether was launched as Real Coin in July 2014 and rebranded as Tether (USDT) in November 2014. Initially based on the Bitcoin blockchain, Tether now supports Bitcoin’s Omni and Liquid protocols, as well as the Ethereum, Avalanche, Kava, Polka, TRON, EOS, Algorand and Solana blockchains. The company reported that it holds 84.58% of its reserves in cash, cash equivalents, short-term deposits and commercial paper. 76.87% of this was in US Treasury bills. It also held 0.05% of its reserves in corporate bonds, 3.62% in precious metals, 2.91% in Bitcoin, 4.95% in secured loans to non-affiliates, and 3.89% in other investments. Tether is a government-secured stablecoin. This means that it is a stablecoin backed by a government-guaranteed currency such as USD, CAD, AUD, and even Yen (JPY). The value of Tether is pegged 1:1 against the US dollar. Tether Limited does not guarantee the exchange or exchange of Tether for USD. Today, Tether supports four stablecoins. US dollar (USDT), Chinese yuan (CNHT) and Euro (EURT), and a stable coin backed by 1 ounce of gold (XAUT).
What is Arbitrum?
Arbitrum is a layer 2 solution designed to enhance the capabilities of Ethereum smart contracts. It adds additional privacy features to boot, while increasing their speed and scalability. The platform is designed to allow developers to easily run unmodified Ethereum Virtual Machine (EVM) contracts and Ethereum transactions on a second layer, while still benefiting from Ethereum’s excellent layer 1 security.
It is built to address some of the shortcomings of existing Ethereum-based smart contracts, such as poor efficiency and high execution costs, which hurt the Ethereum user experience and often make transacting an expensive task. Arbitrum uses a technique known as optimistic rollups. Transactions are executed off-chain before being packaged in large batches and sent as call data to the Ethereum mainnet. This process helps offload much of the computational and storage overhead that Ethereum currently incurs by moving it off-chain. Each batch incurs fixed transaction costs on Ethereum, and these costs are spread across every transaction on Arbitrum, reducing the cost for end users. New York-based development firm Off Chain Labs is currently developing the Arbitrum product as well as a number of scaling solutions.
How Does the Arbitrum Work?
Arbitrum is a type of technology known as optimistic aggregation. It enables Ethereum smart contracts to scale by passing messages between smart contracts on the Ethereum main chain and smart contracts on the Arbitrum second layer chain. The majority of the transaction process is completed on the second layer and the results are recorded on the main chain, greatly increasing speed and efficiency. It is optimistic in the sense that any validator can send a rollup block and confirm the validity of other blocks. The term rollup is used to describe how publicly available information can be used to reconstruct a complete history of the chain from an optimized event log. The Arbitrum protocol helps the network resist collusion and other forms of attacks by ensuring that the code works correctly (i.e. as intended) as long as any validator is honest. As with many blockchains, individual nodes can choose to participate in the Arbitrum chain. Validator nodes are in charge of observing the state of the chain, and full nodes help aggregate layer 1 transactions. Aggregators who submit transactions to the layer 1 chain earn rewards paid in ETH, while the rest of the user transaction fees are distributed to other network participants, such as validators. Arbitrum offers a challenge step for rollup blocks if they believe a block is false when other validators check its accuracy. If the block is proven to be false or a challenge is proven to be unfair, the lying validator’s stake will be confiscated, ensuring that validators always play fair or do not risk their results. The platform also has its own dedicated virtual machine, called the Arbitrum Virtual Machine (AVM). This is the execution environment for Arbitrum smart contracts and sits on top of EthBridge, the set of smart contracts that interface with the Arbitrum chain. Ethereum-compatible smart contracts are automatically translated to run on the AVM.
What Makes Arbitrum Unique?
The project is designed to provide an easy-to-use platform that developers can use to launch highly efficient and scalable Ethereum-compatible smart contracts. But it’s not the first platform looking to overcome Ethereum’s limitations, there are at least a dozen other solutions looking to offer similar functionality. So what makes Arbitrum stand out from the rest? High EVM compatibility Arbitrum is considered one of the most EVM-compliant builds. It is compatible with EVM at the bytecode level and any language that can be compiled to EVM works out of the box, such as Solidity and Vyper. This makes development easier as developers don’t need to learn a new language before developing on Arbitrum. Robust developer tools the team behind Arbitrum does their best to minimize barriers to entry when it comes to developing on layer 2 solutions. As such, they have prepared extensive developer documentation for Arbitrum and developers can get started using the tools available for Ethereum. There is no need to download anything specific to Arbitrum, such as plugins or compilers like Hardhat or Truffle. Low fees and a layer 2 scaling solution for Ethereum, Arbitrum is not only designed to increase Ethereum’s transaction volume but also minimizes transaction fees. With a well-developed ecosystem, Arbitrum is already working with a wide range of Ethereum DApps and infrastructure projects, including Uniswap, DODO, Sushi and dozens of others.
Why Tether Chose Arbitrum?
Tether has selected the Layer 2 Ethereum protocol Arbitrum to provide infrastructure for its new cross-chain initiative Legacy Mesh. The news comes as Tether launched a new token, dubbed USDT0, in mid-January to facilitate smoother cross-chain transfers outside of blockchains that already support USDT. The goal was to do this without the need to use techniques such as wrapping tokens or blockchain bridges. USDT0 is paired one-to-one with Tether’s flagship stablecoin USDT. It runs on Layer Zero’s Omni Chain Fungible Token (OFT) standard, which is used by other stablecoins such as PayPal’s USD stablecoin PYUSD. The Arbitrum blockchain will act as a “central chain” connecting the USDT and USDT0 networks. This will allow USDT distributions on Arbitrum, Ethereum, Tron, Ton, Ink and Bera chain to be connected back to a unified USDT0 network. “Legacy Mesh is an important milestone for Arbitrum, enabling users and developers to access deep, liquid markets regardless of the blockchain they are on,” said Steven Goldfeder, co-founder and CEO of Off chain Labs, which developed Arbitrum. Tether has been on a roll since 2025 in increasing interoperability with other blockchains. Tether also incorporated interoperability with Bitcoin via the Lightning Network at the end of January, after announcing the move at a Bitcoin conference in El Salvador. We have also seen Arbitrum underpin numerous other infrastructure projects in recent months. BitcoinOS, the Bitcoin aggregation layer, recently announced an integration with Arbitrum One to bridge Bitcoin users and DeFi applications on Ethereum. Stablecoin adoption on Arbitrum has reached new heights, with over 1.3 billion USDT currently minted on the platform. This puts Arbitrum at the clear forefront among all Layer 2 networks when it comes to liquidity and adoption of stablecoins. It also cements Arbitrum’s status as a leading scaling solution in the Ethereum ecosystem, which resonates widely in the real world. By announcing an upgrade for USDT on Arbitrum to the USDT0 standard, Tether seeks to improve interoperability while maintaining 1:1 support on Ethereum, an upgrade approved by the USDT0 ecosystem consortium. The best part is that users don’t need to take any action, making the transition completely seamless. However, while Arbitrum is pleased with the successful launch of its stablecoin, it cannot yet do the same for ARB, the network-specific token. According to the latest data, only 10% of ARB holders are making money today and the other 40% have been holding the token for more than a year without making a profit.
Arbitrum’s growing dominance in the stablecoin market is due to the fact that stablecoins are extremely important to the crypto economy; they provide liquidity, enable seamless transactions and act as a hedge against volatility. Among Layer 2 networks, Arbitrum has emerged as the dominant player with over 1.3 billion USDT in circulation. More than any other Ethereum L2… Arbitrum’s efficiency and appeal to users who want secure, low-cost, high-speed transactions is reflected in the level of adoption of this stablecoin. Unlike the increasingly congested and expensive Ethereum base layer, Arbitrum offers a more scalable and cost-effective solution, making it more attractive to both projects and users
USDT0 Upgrade
A major breakthrough for Arbitrum The latest development in Arbitrum’s stablecoin ecosystem is the transition of USDT to the USDT0 standard. This transition, supported by Tether, aims to increase USDT’s already seamless interoperability across networks and ensure that it is fully collateralized and backed 1:1 by Ethereum, as always.
The main features of this upgrade are:
Improved Cross-Chain Compatibility: USDT0 aims to increase interoperability between chains, allowing for more efficient value transfers between Ethereum and Arbitrum.
No User Action Required: In past migrations for stablecoins, users were required to change their holdings manually. This time, the process is fully automated, and no user action is required at all, a feature that definitely increases the convenience factor and eliminates any worries for holders of old coins
Tether’s Unconditional Support: Tether expressed its excitement about this upgrade, noting the stablecoin issuer’s commitment to innovation and growth in the stablecoin sector. This initiative is expected to provide an additional boost to the use of stablecoins on Arbitrum and strengthen its position as the preferred Tier 2 network for executing USDT transactions.
CONCLUSION
While stablecoin growth and adoption in Arbitrum’s ecosystem is, to use a cliché, off the charts, the growth and adoption of the network’s native token ARB is not. At current prices: Only 10% of ARB holders are in profit, which means that 90% of investors hold assets with unrealized losses. The fact that 40% of ARB holders have held ARB for more than a year suggests that a significant portion of early adopters are still waiting for a rebound in price. For ARB investors, this data paints a bleak picture. Stablecoins serve a clear purpose. They are widely used for transactions and liquidity. In contrast, the utility of ARB remains a mystery to many investors. In conclusion, while the stablecoin ecosystem on Arbitrum continues to thrive, with more than $1.3 billion circulating in USDT and Tether fully supporting the USDT0 upgrade, and while Arbitrum is undeniably a technological success, the price of ARB remains a challenge to translate the growth of an ecosystem into real value for a token It is difficult to say whether ARB will rebound or remain stagnant. It is likely that future demand for ARB will depend heavily on how well the ecosystem develops with the USDT0 innovation and whether anything happens to boost token demand.
