(Un)stable coin Tether troubles could crash the whole ecosystem right now but end up being good long-term
The price of the most known crypto stablecoin Tether (USDT), whose value is theoretically pegged to $1, has dropped by around 5 percent in the past 24 hours to $0.91, effectively losing its peg and its sole purpose.
Just days before the token lost its dollar peg, Tether LLC, the issuer of the USD-backed cryptocurrency tether (USDT), pulled $300 million worth of the “stablecoin” out of circulation last week.
Crypto markets are seeing solid growth at the beginning of the week, with essentially all of the major coins jumping up as of press time. An exception in the space is Tether (USDT)
Tether Sell-Off is good bad now but good in long-term
Tether used to be a necessary evil but has since lost the prefix “necessary”. The fear of Tether implosion and the Bitfinex saga has been a drag for months. Almost everything Bitfinex did was shrouded with doubt, lack of transparency in combination with deliberate or organic community FUD was unbearable. If Tether finally crumbles and dies, we can finally move on. Or is it so simple?
Worst case scenario – complete crash of Tether and solvency problems for exchanges
In the short term, Tether crashing and biting the dust would be bad for the whole ecosystem – but especially bad for people who got stuck with bags of it without an option to move to some other coin. The whole market would suffer big time – panic and doomsday scenarios would dominate the space. It would be a crypto version of bank-run and since Tether is probably not solvent (just like the real banks are not) a lot of people would end up with empty hands. Trust in the crypto markets would be seriously shattered and bitcoin haters would crawl out and relish the opportunity to bash it.
I am old enough to remember the 1929 US bank closures. ?? There will be a day when the banks (many crypto exchanges) will be closed when traders want to withdraw tether. Being short tether anywhere close to $1 is a good trade.
— Peter Brandt (@PeterLBrandt) October 15, 2018
After the implosion shock is over, there would be complaints by people who lost their money hitting regulators. And enough people shouting down crypto after being liquidated, could make it broken for years. If exchanges went insolvent too, and people who don’t deal with Tether get also dragged down, crypto would be done until strong regulations were in place.
In a slightly better case, if the exchanges holding Tether honored their users out of their own pocket and locked their USDT deposits/withdrawals, people holding on exchanges would be fine. People hording off exchanges would be liquidated, but people still in the game would be safe and confident in their (hopefully still solvent) exchanges. Such crash would not be too drawn out. Definitely more than a few weeks, but not years or anything. And then we move on to the already existent legit and regulated alternatives.
There are 4 alternatives, stablecoins that are secure, transparent and officially regulated – TrustToken’s TrueUSD (TUSD), Circle’s USDCoin (USDC), the Gemini Dollar (GUSD) from the Winklevoss-founded New York exchange and Paxos Standard Token (PAX).
The price of TUSD has already jumped to $1.08, which is an increase of more than 8 percent, and has gone up considerably against USDT on Binance, which indicates that traders have started to chose newly emerging stablecoins that have the backing of banks and authorities.
In the long run, people moving away from an opaque, unregulated stable coin that never published audited financials to regulated, better run stable coins is a good thing for the crypto market and it shows maturity.
