Tether: What is the Future of USDT Stablecoin?
Everyone loves charming bad boys. Even with its history, Tether was favored by everyone we know for years. Now that its comrades like UST are falling down all around Tether, will it keep the world of crypto on its fragile shoulders, or collapse?
“Long one of the most scrutinized companies in the industry, Tether is facing heightened pressure from regulators, investors, economists and growing legions of skeptics, who argue it could be another domino to fall in an even bigger crash. “Tether is really the lifeblood of the crypto ecosystem,” said Hilary Allen, a finance expert at American University. “If it implodes, then the entire facade falls down.”
New York Times
What is Tether briefly
Tether is a cryptocurrency pinned to the US dollar. The tether cryptocurrency (symbol: ₮) is backed 1-to-1 with traditional fiat currencies, such as USD. A spokesperson for Circle, the company behind USDC, told Decrypt that the stablecoin "is conservatively backed by cash and short-term U.S. government obligations, making it easily redeemable and stable for transactions."
What happened to its colleague UST?
Forbes describes “$60 billion wiped out of the digital currency space” after the collapse of Tether’s colleague UST. The reason? It’s likely Tether became so popular because of its management's claims that it’s backed by USD, meaning that for every Tether there is a USD in the company’s reserves. Other stablecoins, which decided they’d rather be tied to theoretical tokens that exist only in the virtual world, found out it was a bad idea post-factum: the crash of the UST crypto network was described as the biggest crash in the industry's history, and also led to an arrest warrant for the owner of the Terra Network project Do Kwon (and seven other executives and investors). Ow.
The reason?
Clients weren’t sure of the value of the UST token, resulting in a bank run on UST, and things unraveling from there. Why weren’t they sure? Because UST wasn’t essentially tied to anything in the “real” world, according to critics, and thus probably had no value other than for short-term trading.
That for some people implied that at any point it could get panic-sold (so everyone tried to panic-sell it before everyone else panic-sold it).
Why do you care?
You can think of UST as USDT’s (Tether’s) colleague. One down…how many to go? Other collapses in 2022-2023 included Circle’s stablecoin USDC, which had billions of its reserves in a bank that collapsed and couldn’t get it out in time. That, obviously, begs the questions such as: what other stablecoins are there you can rely on? With the fall of the FTX exchange and SIlvergate and Signature banks, it is beginning to look like the crypto world infrastructure is collapsing, dragging big stablecoins down with it. Is it Tether’s turn?
USDC: USDT: pic.twitter.com/wcF5wGvsun
— Luiz Ramalho (@dgntec) March 11, 2023
Is it actually as good as people think?
Tether has been surprisingly resilient through the years. Even though it has seen a scandal or two in its time, it’s remained intensely popular with the public so far, even despite its very vocal critics. The question is: how long will that continue?
What will become of Tether in the future?
Even one report of a criminal investigation by the DOJ for possible bank fraud should make you sweat. If we were you, given all the drama lamas, we’d start exploring the alternatives.
