Stronger privacy is coming to the largest stablecoin, tether, with a recent blockchain-to-blockchain swap of $15 million worth of tokens.

At 11:27 UTC on Jan. 7, stablecoin issuer Tether conducted a cross-chain swap of some 15 million USDT reserves from ethereum to Blockstream’s Liquid, a federated sidechain running parallel to the bitcoin blockchain. The technical possibility of USDT’s Liquid debut was first announced in July 2019.

Innocuous at first glance, the transfer has implications for both digital asset trading and the larger tether market, which saw a mass migration from Omni, a bitcoin-based protocol, to ethereum and even Tron over the course of 2019.

But what Liquid offers is privacy.

Through confidential assets – a privacy tool which blinds asset values on public ledgers via a protocol called “confidential transactions” – these tether may never see public light again. In fact, it may be the first instance of private digital asset trading at scale.

By hiding tether transfers between off-exchange accounts on Liquid and exchanges themselves, traders can move assets around “without worrying about frontrunning,” pseudonymous Blockstream community manager Grubles told CoinDesk via Telegram. 

For example, a trader could move some Liquid-based tether to an exchange, with the intent of buying bitcoin without tipping her hand to others who might drive the price up before she can make the purchase. 

“Movements of tether can be tracked in general but also particularly to and from exchanges, which is valuable information. People absolutely trade based on this information,” Grubles said. “Moving from a blockchain that has transparent transactions and onto Liquid is somewhat of a no-brainer in the context of trading.”

Tether maintains a healthy competitive advantage against other stablecoins with nearly 75 times the daily trading volume of the next leading stablecoin, the Paxos Standard (PAX), according to Messari’s Stablecoin Index. Noting its ubiquitous use today by traders, Grubles said a pairing with privacy tech only adds to tether’s competitive edge.

Moreover, tether on Liquid may be the first instance of a semi-private stablecoin, according to Blockstream CSO Samson Mow.

“Services like Whale Alert, that track movements of assets, would not work for confidential assets in Liquid,” Mow told CoinDesk.

However, the number of tether tokens issued on Liquid remains public via the Blockstream block explorer, said Grubles, potentially assuaging some of the concerns of Tether skeptics. The stablecoin issuer and its sister company, Bitfinex, are currently under investigation by the New York Attorney General’s Office for allegedly commingling corporate and customer funds.

Confidential assets (CAs) were first formally proposed by Blocksteam employees in an April 2017 academic paper penned by bitcoin researchers Andrew Poelstra, Adam Back, Mark Friedenbach, Gregory Maxwell and Pieter Wuille.

As described in the paper, the researchers used Pedersen commitments, a mathematical function capable of shielding input information while proving its overall validity, to “blind the amounts of all unspent transaction outputs (UTXOs, the term for individual blockchain values).”

Through CAs, coins can be both hidden from prying eyes and proven to still exist. Customer demand drove the decision to convert $15 million worth of tether from ethereum to the Liquid version, Tether CTO Paolo Ardoino told CoinDesk.

“With Confidential Transactions you can’t see the amounts being sent from one party to another,” said Mow. “That means that USDT issued in the Liquid Network provides better privacy than USDT on other chains.”

As a vehicle for crypto trading and price volatility protection, it’s likely more USDT will be minted on Liquid given the advantages. And, it's not like Tether hasn’t played nomad before.

“We may be witnessing the beginning of another Tether migration from ERC20 to Liquid,” said Tales from the Crypt podcast host Marty Bent in a blog post Tuesday. (ERC20 is the standard Tether has used to create tokens on top of ethereum.)

Launched as RealCoin in July 2014, tether is currently issued on multiple blockchains, the largest of which are ethereum, Omni and Tron. As data provider CoinMetrics shows, Tether kicked issuance onto the ethereum blockchain into high gear in April 2019, rising from $60 million to $400 million in a mere four weeks.

Eight months later and a flippening of sorts occurred, with tether issuance on ethereum overtaking Omni earlier this winter. At press time, some $2.3 billion tether was issued on ethereum compared to $1.5 billion on Omni.

While $15 million may be a far cry from $60 million, let alone $1.5 billion or $2.3 billion, Tether’s last year with ethereum demonstrates how fast the tide can shift.

“The impetus for the transition away from Omni to an ERC20 standard is, from what I understand, because their wallet support is [subpar]. What ethereum has done really well to date is make it really easy for services to spin up a wallet and accept random tokens,” Bent wrote. “One thing the transition to an ERC20 standard hasn't solved for Tether users is the Whale Alert problem.”