Tether is considered to be a fairly largescale and stable coin, however, at the same time, it can burst at any moment. This crypto asset is linked to a relatively stable value of something in the world, such as the dollar. When it comes to market capitalization, this cryptocurrency is considered to be the major one.
The main reason traders and investors use Tether is because of its liquidity and its ability to rise or fall in positions on exchanges without much change in price. It sometimes outperforms Bitcoin in terms of liquidity.
Tether – What Is It About?
The dominance of Tether in the cryptocurrency market is an obvious fact. However, many crypto investors believe that it is not reasonable to invest in this type of currency, while others are absolutely convinced that the future belongs to it and that it is the most consistent stablecoin.
Tether is an identical cryptocurrency to Bitcoin but it features significant differences. It is considered a stablecoin because it is backed by a 1:1 link to the dollar. To create one virtual coin, you must add $1 to your account. This is where the efficiency lies. The other types of cryptocurrencies that are not stablecoins are volatile. Their value is changing over a short period of time.
Unfortunately, however, the situation is not as good as we would like it to be in light of current developments. This stablecoin was originally created to facilitate trade, crediting, and money transfers. The basic concept of virtual crypto’s stability was to back it up with 100% U.S. dollars. And yet, the certification process has shown a very different picture – Tether is only 3.9% cash-backed, while 65.4% are short-term credits that are provided by corporations. They are called commercial papers. At the same time, the information about the types of loans and the borrowers is completely confidential, which creates a certain haze around this issue.
In addition, the situation was exacerbated by the information that the Tether parent company had problems with the Attorney General’s Office in New York. As a result, penalties were imposed on BitFinex that amounted to millions of dollars. The company itself denies this fact. Nevertheless, it can be rightfully said that the confidence of investors decreased significantly.
How Tether Stablecoin Affects the Market
A large number of analysts believe that the virtual coin cannot guarantee any kind of stability, and in fact, it poses a potential threat to the financial position. The thing is that traders use the coin to secure their cryptocurrency assets at the time of maximum volatility in the cryptocurrency market. Tether provides an opportunity to safely store capital without exchanging it for a fiat currency. This is the reason why many traders have Tether.
In a situation where confidence in Tether would drop significantly, USDT holders would start selling stablecoin or demanding its redemption. And it would be fine if it were actually backed completely by dollars and not by commercial papers. That causes the main doubt of experts about its stability. After all, in such a situation Tether would be hardly able to make all compensatory payments to its holders. To date, everyone who has asked for redemption has received it, although after a certain period of time.
USDT is currently the largest stablecoin in terms of market capitalization. It is involved in many Bitcoin transactions around the world but it is not the only stablecoin option. Should Tether collapse, it will definitely have a significant impact on the entire market. Nevertheless, some stablecoins will definitely take its place, since such coins as Gemini and GTBC are completely backed by the U.S. dollar.
It’s hard to predict what the future will hold but it’s safe to say that it will depend on whether the rules change or not. The odds are great, of course, but how Tether will change depends only on how and to what extent the rules change.
One realistic situation is the introduction of the digital dollar. This will give the opportunity to discontinue the usage of Tether and other types of stablecoins. They will simply become completely unnecessary. Such a dollar is a major risk to the future of both Tether and other stablecoins. The developers of Tether do not agree with this opinion and believe that the digital dollar is not a hindrance to them. The debate on this topic continues, and in the meantime, the developers of Tether are working hard to regain lost ground and regain the trust of holders.