What is USDT?
First things first, what is USDT? USDT, also known as Tether, is a cryptocurrency that is pegged to the value of the US dollar. Essentially, for every USDT token in circulation, there is supposed to be one US dollar held in reserve. This is meant to provide stability to the cryptocurrency, as it is not subject to the same volatility as other cryptocurrencies that are not backed by a stable asset.
Who owns USDT?
USDT is owned by Tether Limited, a company based in the British Virgin Islands. Tether Limited is owned by iFinex a Hong Kong company that owns the cryptocurrency exchange Bitfinex, and the two companies share many of the same executives. This close relationship has led to some concerns about the transparency and legitimacy of USDT.
Can USDT be trusted?
This is the million-dollar question, isn’t it? The answer is a bit complicated. On the one hand, USDT has been around since 2014 and has a market capitalization of over $68 billion, which is nothing to sneeze at. While most of us don’t particularly look at Tether as a crypto project, nonetheless, it sits comfortably at the number 3 spot by market capitalization. This stablecoin is how much of the world onboards into crypto, including yours truly.
Additionally, Tether Limited has repeatedly claimed that it has enough reserves to back all of the USDT in circulation.
However, there are some red flags to consider. For one, Tether Limited has not been particularly transparent about its reserves.
The company has claimed that its reserves are held in a combination of cash and other assets, but it has not provided a full accounting of what those assets are.
Additionally, Tether Limited has been the subject of numerous lawsuits and investigations, which have raised questions about its practices.
So, can USDT be trusted? That’s up to you to decide. There are certainly reasons to be cautious about investing in USDT, but there are also reasons to believe that it is a legitimate and stable cryptocurrency.
Let’s put it this way, pretty much all crypto tokens are paired with Tether, even Bitcoin which most cryptos are paired to as well. Examples BTC/USDT, ETH/USDT, XRP/USDT, etc.
USDT’s Increasing Market Share
According to recent data compiled by Blockworks, USDT’s market share has been steadily increasing and is currently at nearly 50%.
This is the highest it has been since December 2021.
Meanwhile, Circle’s USDC stablecoin has lost over $3.3 billion in supply this year, while Binance’s BUSD has also seen a reduction in supply.
Continued Growth of USDT
USDT’s circulating supply has grown by approximately 3% this year, with an additional $2.4 billion in deployment. This brings the total circulating supply to $68.4 billion. Despite concerns about transparency and legitimacy, Tether Limited has consistently maintained that it has enough reserves to back all USDT in circulation.
The Importance of Stablecoins
Stable coins like USDT are important in the crypto ecosystem as they provide a stable store of value. They allow for easy transfer of funds without the volatility associated with other cryptocurrencies that are not pegged to a stable asset. It’s the offramp when you’re taking profit from your investments. When you buy low an asset like Ethereum, and you choose to sell when Ether’s price rises, you’ll typically sell and cash out into a stablecoin like USDT.
Competition and Challenges
USDT’s main competition comes from Circle’s USDC and Binance’s BUSD. However, BUSD has faced potential regulatory challenges from the SEC, which has claimed that it is an unregistered security. Meanwhile, DAI, the decentralized stablecoin maintained by MakerDAO, has lost 10% of its supply, making it the biggest loser of the top-tier stablecoins.
Continued Growth of the Stablecoin Market
Although the total stablecoin market has shrunk by 1.5% this year, its market capitalization currently stands at around $138.5 billion. Tether, USDC, and BUSD make up a significant portion of this market, allowing token holders to exchange stablecoins for US dollars.
What Would Occur If USDT Depegged And Collapsed?
If Tether were to depeg and collapse, it would likely cause a significant disruption in the cryptocurrency market. As I previously mentioned, Tether’s market share is currently around 50%, and it is a primary source of liquidity for many cryptocurrency exchanges. If USDT were to lose its peg to the US dollar, it could result in a severe loss of confidence in the cryptocurrency market as a whole and bankrupt a lot of investors who hold their profits in USDT.
The Potential For A Mass Exodus
In the worst-case scenario, we could see a mass exodus of investors from the cryptocurrency market. A collapse of USDT could trigger a panic among investors, causing them to withdraw their funds from exchanges and leading to a sharp drop in prices. This could have a ripple effect throughout the entire cryptocurrency market, leading to a significant sell-off and a prolonged bear market that would take a long while to recover from.
The Effect On Other Stablecoins
The collapse of USDT could also have an impact on other stablecoins in the market. It is possible that investors could lose confidence in all stablecoins, leading to a further loss of liquidity right across crypto. This could make it more difficult for traders to access fiat currency and lead to a reduction in trading volume and liquidity across the entire cryptocurrency market.
It’s important to note that this is a worst-case scenario, and I’m not suggesting that USDT will collapse. Still, as with any investment, it is important to do your research and make informed decisions and prepare for all possible outcomes.