Last updated on July 11th, 2023 at 11:20 pm
USDT is a popular stablecoin that is pegged to the dollar and largely free from the volatility that is common in major cryptocurrencies. Volatility has become an issue in the crypto realm, which has discouraged potential crypto users from diving into the innovations that space offers. USDT is not the only stable coin in existence, as it has competitors like USDC run by Coinbase, BUSD run by Binance, and so on.
Recently, USDT has been in the news for controversial tendencies. Some parties have raised concerns that the issuer of USDT or Tether may have exaggerated the amount in their dollar reserves. Economists feel that the issuer may not have the right amount of dollar reserves to justify pegging it to the dollar.
To respond to the allegations against it, the issuers stated in May 2021 that only 2.9% of its reserves were in liquid cash, while the rest were in other asset forms like commercial paper. With this analysis, the issuer of USDT is currently ranked as one of the largest holders of commercial paper globally. Its issuers have tried their best to align with the rules of traditional regulators, not minding that there may be no existing regulations to warrant that.
Since Tether has tens of billions of dollars worth of USDT in existence, it means that it possesses more deposits than many traditional financial institutions in existence.
Another round of allegations has been linked to Tether being used as a tool to sway the prices of Bitcoin.
A study that was done in 2017 by John Griffin, a professor at the University of Texas, and Amin Shams raised this line of thinking.
Tether also entered into a big issue with the New York Attorney General’s office. It was believed that it was in cahoots with an exchange, Bitfinex, to cover up hundreds of millions worth of losses. Both companies paid $18.5 million as settlement, though they didn’t agree to the allegations. They are no longer allowed to operate in New York.
Eric Rosengren, President of Boston Fed stated that USDT may affect the stability of the market and economy in general.
Tether: What is it?
According to coinmarketcap.com, Tether currently occupies the position of the third-largest crypto in terms of market volume. Though it may be crypto, it is different from the usual cryptocurrencies like Ethereum, Ripple, and so on. Typical cryptos are volatile, meaning that they can swing high and low within minutes, which makes them a poor store of value.
USDT or Tether is a stablecoin and has unique characteristics that are unseen in the typical cryptocurrencies. For one, these cryptos are linked to real-world assets. Some stablecoins are pegged to fiat currencies, while others may be pegged to other real-world assets like precious metals and even real estate properties. The year 2021 has seen the highs and lows of the crypto world. In the first quarter and early second quarter, the value of Bitcoin and many altcoins were swinging towards the high side, with Bitcoin almost getting to $65,000 in April. This is not the case at the time of writing this article. It has plummeted drastically.
Intense volatility as the aforementioned has created the need for stable coins like Tether, which is pegged to the dollar. Day in and day out, 1 USDT is always equivalent to a USD.
In Conclusion…
- USDT was created to act as a bridge between crypto and the traditional finance world. As a fiat-collateralized stable coin, it was meant to drive the massive adoption of cryptocurrencies. With the controversy surrounding it, some investors are thinking of alternatives.
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