Tether, or USDT, is supposed to remain “tethered” to the US Dollar, as its name implies. That’s its whole purpose as a token: it exists on exchanges as a way for traders get their profits to safety, in a sense, so they have some idea of the real fiat value of their portfolio.
It was originally created by Brock Pierce, former actor and current crypto entrepreneur, and some other venture capitalists and first launched on major fiat-crypto exchange Bitfinex. At present, it is used on nearly every major exchange, but you can only withdraw US dollars at the full $1.00 value as a result of having USDT on Bitfinex. On other exchanges, one is able to get a dollar’s (in theory) worth of a crypto that is paired with USD and thus cash out to USD at a predictable rate.
According to Tether’s site:
“Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account. Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.”
This last bit is the news of the day: tether has once again divorced itself from the 1:1 US dollar ratio it promises investors. The current price as shown below is its lowest point since the middle of October when it dipped all the way to 93 cents. There are a few factors which go into a stablecoin actually “destabilizing,” and in the case of tether, it’s fair to say there are positive and negative factors which should be moving it both directions.
In the red column, which might encourage a run on the USDT bank, there have been a number of new alternatives to USDT, all of which have come out in the past several months. Coinbase and Circle launched USD Coin, itBit launched Paxos Standard, and the Winklevoss Brothers’ Gemini exchange backed a stablecoin called Gemini Dollar. All of these tokens have similar purpose and functionality to USDT, and there are some tertiary effects to them coming about.
In the case of Coinbase, Circle, and Gemini, these exchanges no longer have incentive to list or mess with USDT at all. In the case of Paxos Standard, a legitimate competitor with a perceptibly superior regulatory profile (itBit has a BitLicense) emerges.
The only thing that can drive the price of any token down, besides generous holders who want to sell at a loss for some reason (which never happens), is sell-offs and decreased demand. While its price has dropped more than 5 cents off the target of $1.00, volume steadily increased over the 24 hour period, indicating the theory is likely correct: traders are liquidating USDT beyond the ability of exchanges to compensate at the desired rate, thus decoupling the bitcoin (and thus dollar) value of the token from its target.
The stablecoin is a tricky, idealistic instrument which anyone is likely to struggle to successfully implement. Consequently, the new competitors could also face similar problems in the future.
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Last modified: May 20, 2020 2:32 PM UTC