Ethereum on-chain USDT burns 3.5 billion tokens in a single event, will the market liquidity face a major test?

On February 10, 2026, Tether’s treasury executed a one-time burn of 3.5 billion USDT tokens on the Ethereum blockchain. This amount accounts for approximately 1.87% of the current total circulating supply of USDT (about 184.3 billion), making it one of the largest single stablecoin supply contractions in history.

It is noteworthy that this burn occurred on a single Ethereum chain. Since Tether employs a multi-chain issuance strategy and frequently conducts cross-chain liquidity adjustments, a large burn on one chain does not equate to an equivalent net reduction in USDT’s total circulation across the entire network. Based on overall market cap data, this operation coincided with an approximate reduction of 1 billion USDT in the total supply across all chains.

Although the market’s immediate reaction to this massive event was relatively subdued, the complex supply-demand adjustments and liquidity impacts behind it are causing far-reaching ripples in the digital asset space. As of February 11, 2026, Bitcoin (BTC) was trading around $66,886.93 on major exchanges like Gate, down 2.92% over the past 24 hours, with the overall market showing a cautious and consolidating stance.

Key Event: The Disappearance of 3.5 Billion USDT

Blockchain data monitoring service Whale recorded this historic moment. The transaction is clearly traceable on the Ethereum blockchain, originating from Tether’s main treasury address, which ultimately sent USDT worth $3.5 billion to an unspendable “burn address,” meaning these tokens have been permanently removed from circulation.

Large-scale burns are not unprecedented. Previously, Tether has conducted burns due to user fiat redemptions or active supply management. For example, in Q3 2023, a burn of 1 billion USDT occurred prior to a period of reduced market trading volume.

However, compared to past burns, this one is unprecedented in scale, and the signals it sends are more complex. It is not merely a technical operation but resembles a large-scale monetary policy adjustment by Tether.

Scale Perspective: How Significant Is This Burn?

The absolute number of 3.5 billion is already staggering, but understanding its significance requires context. Before the burn, USDT’s total circulating supply had risen to a record high, with market cap surpassing $187 billion in Q4 2025.

This burn directly removed about 1.8% of the circulating supply. This means a substantial amount of potential liquidity—ready for trading or used to purchase other crypto assets—was suddenly taken out of the market.

As a stablecoin bridging traditional finance and the crypto world, its supply directly influences market activity and purchasing power. Such a large proactive contraction is akin to a massive liquidity withdrawal in traditional financial markets.

Market Impact: Short-Term Calm, Long-Term Changes

Following the event, the market’s immediate response was surprisingly restrained. Bitcoin’s price showed only minor fluctuations, and Ethereum (ETH) remained relatively stable at around $1,942.53 as of February 11.

This calm may stem from market maturity. Investors increasingly view large treasury operations as routine monetary policy actions by stablecoin issuers rather than panic-driven events. However, beneath the surface, deeper effects are brewing.

The core impact lies in liquidity. USDT is the primary quote and settlement currency for most crypto trading pairs. Its sudden supply contraction directly reduces the amount of USDT available for trading.

If overall demand for stablecoins remains unchanged, the reduced USDT supply could lead to relative scarcity for purchasing Bitcoin, Ethereum, and other assets, potentially exerting upward pressure on their prices.

Mechanisms and Purpose: Why Conduct Such a Large Burn?

Stablecoin issuers manage supply through “minting and burning” mechanisms to maintain their 1:1 peg with the US dollar. When users redeem USDT for fiat via authorized channels, Tether typically burns those tokens.

Therefore, the most direct explanation for this burn is a large-scale fiat redemption. This could indicate that major institutional investors are moving funds out of crypto markets and back into traditional finance.

Another perspective is that Tether may be proactively adjusting its supply during periods of high fiat reserve yields, aiming to strengthen its peg and demonstrate prudent reserve and supply management. This aligns with increasing regulatory scrutiny worldwide on stablecoin issuers.

Transparency and Risk Management: How Does Tether Maintain Trust?

Every large-scale operation draws public attention to Tether’s reserve management and transparency commitments. Since 2021, Tether has regularly published quarterly reserve attestations.

In theory, such a significant burn should be accompanied by a corresponding reduction in liabilities and reserves on Tether’s balance sheet. Market observers are closely watching upcoming reports to verify whether this operation is fully matched.

Tether also demonstrates risk management through other actions. Between 2023 and 2025, Tether cooperated with law enforcement agencies in 62 countries, freezing USDT worth up to $3.4 billion related to illegal activities. These proactive compliance efforts are part of its strategy to maintain ecosystem security and legitimacy.

Stablecoin Competition: It’s Not Just USDT

When analyzing USDT, it’s important to consider its competitive landscape. Despite its dominant position, other stablecoins are vying for market share with different strategies.

Circle’s USDC, known for strict regulatory compliance, is increasingly favored by institutional investors. Decentralized stablecoins like DAI (by MakerDAO) and USDD attract users through over-collateralization and innovative yield mechanisms.

Different stablecoins embody different trust models and use cases. This recent burn of USDT also serves as a stress test of its centralized management approach. The market will observe whether Tether can balance flexibility, transparency, and trust effectively.

Summary

As of February 11, the USDT to USD exchange rate on the Gate platform remained close to $1.00. After the burn, BTC hovered around $66,886.93, and major assets like ETH showed little volatility.

This suggests that the market interprets the 3.5 billion USDT “heart surgery” as a healthy liquidity adjustment rather than a sign of systemic risk. It affirms the role of stablecoins as a foundational liquidity pool in crypto markets and indicates that mature monetary management policies are taking root in this emerging field.

Ultimately, the future of the crypto market will be shaped gradually through such large on-chain operations and the global scrutiny they attract, continuously redefining the landscape.