Why Tether is dangerous for crypto market
Stablecoin Tether is one of the main channels for converting fiat money into cryptocurrency. The recent erroneous emission of 5 billion USDT has once again reminded that the centralisation of projects can seriously harm the entire crypto industry.
Tether (USDT) is a stable cryptocurrency, which allegedly is backed by the US dollar - 1 to 1 and other assets, including loans issued to third parties. At its core, those are digitised dollars, thanks to which traders can fix their profits on
crypto exchanges without going to fiat.
At the moment there is about $ 3.9 billion concentrated in the USDT, and despite the fact that the crypto community has doubts about the security of the coin, it is still in quite high demand. For comparison, in other stable coins there is many times less money. For example, the capitalisation of a crypto dollar from Circle and Coinbase amounts to $ 400 million, TrueUSD - $ 220 million, Paxos - $ 176 million, and in the stable GUSD from the Winklevoss brothers - only $ 8.4 million.
$5 billion or just thin air
However, the accidental issue of 5 billion USDT forced crypto enthusiasts to recall the risks of this coin. On July 14, Tether mistakenly printed 5 billion tokens on the TRON
blockchain, after which they were immediately burned, releasing 50 million USDT instead, which went to the Poloniex crypto- exchange.
According to Paolo Ardoino, a CTO affiliated with Tether Bitfinex, the incident occurred during the preparation for the transition from the Omni blockchain to TRON due to a problem with
In spite of the fact that the mistake was corrected, the centralisation risks of such crypto projects create threats to the entire crypto community. Since the additional issue of coins provokes jumps in the cryptocurrencies rates and creates tools for manipulations. And when unsecured crypto dollars go into print, the consequences for the market can be lethal.
“At the moment, you can carry out the endless emission of Tether and buy Bitcoin just for nothing. The coin, in fact, is not backed by anything except the words of the company itself. That’s the same as another printing press from central banks, ” says Alpari’s analyst Maxim Parkhomenko.
In this case, for the first time, evidence of the problems with providing steablcoin came to light when the New York City Prosecutor General’s Office accused the associated companies Tether and Bitfinex of hiding information about the loss of $ 850 million from crypto-burglary. Then the marketplace secretly compensated for the amount from the fund Tether.
It was at that moment that it became known that the USDT was provided with only 74%, and not 1 to 1 US dollars, as previously stated. At the same time, the absence of a transparent audit only aggravates the situation.
Bitcoin price manipulation
Anyway, but the influence of Tether on the cryptoindustry is quite noticeable. Many experts even associate the growth wave of Bitcoin with the emission of tokens USDT. Spring bull race is no exception. Since due to cryptodollars and there was an increase in demand for BTC. But, in an interview with TD Ameritrade Network CEO Kraken, Jesse Powell stated that such a correlation is observed on every crypto-exchange that uses regular bank accounts for deposits.
According to him, Tether is just a more transparent version of the display of what is happening on all exchanges during periods of rising Bitcoin prices. Because when the media talks about the appreciation of the first cryptocurrency, retail investors immediately rush to the stock exchange. At the same time, ordinary deposits opened on stock exchanges through bank accounts are not displayed in the public blockchain that the whole world sees. However, not everyone shares this view.
“Tether has a strong influence on the market. In fact, this is a time bomb and a matter of time when it will be felt. In terms of
trading volume, this coin at the moment concentrates about $ 28 billion per day, which in certain periods exceeds the volume of trading in Bitcoin, ”says Maxim Parkhomenko.
At the same time, according to the expert, despite all the threats, traders continue to use this stable coin by virtue of habit and convenience.
The presence of other crypto assets on the market creates competition that is able to solve pressing market problems, such as the centralisation of the coins’ emission.
According to the representative of the Reserve Company - Nevin Freeman, at the moment centralised stable coins such as USDT, USDC, TUSD satisfy the market demand, and there is no need for decentralised solutions just yet.
“However when centralised coins become more limited or completely banned, decentralised cryptocurrencies will become much more important. And such decentralised stable coins as DAI and Reserve, can benefit from such situation and offer a much more reliable option in the genuine spirit of resistance to censorship,” claims Freeman.
Therefore, as long as traders use Tether, despite the presence of other stable coins that are being independently audited, there is a risk that they will receive thin air instead of fiat money. There is another threat anyway. If the governments of countries with active crypto traders decide to ban the USDT, the only way to get one’s money is to switch to decentralised stable coins. Until then, the choice of stable coin - is a personal choice of each and every user.
Author: Annabella Lapshyna