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With regulatory approval of the Gemini Dollar and Paxos Standard, lets take a look at crypto's largest stablecoin: Tether

Sep 12, 2018

  • Tether (USDT) is a stablecoin first issued in 2015 that mirrors the value of the US Dollar on a 1:1 basis.  
  • Unlike other cryptocurrencies, Tether is backed by physical US Dollars held in reserves. 
  • The goal of Tether, and stablecoins in general, is to offer investors stability in volatile crypto markets while creating liquidity for exchanges that cannot deal in fiat currencies. 
  • One downside of Tether is that having a top 10 cryptocurrency that is just a ‘dollar substitute’ ties the general crypto market to a centralized currency simply run by a middle-man. This moves away from the crypto market’s ideals of ‘decentralization’ and ‘untethered markets’.  
  • Tether is also operated by the same people in charge of top 10 crypto exchange, Bitfinex. Critics point out that one group of people operating both a top 10 crypto exchange and top 10 cryptocurrency may cause conflicts of interest. 
  • One final concern of Tether is that it is not always backed by a 1:1 reserve ratio, and instead fractional reserve lending may be occurring.  
  • With the regulatory approval of two new stablecoins in the United States (Gemini Dollar and Paxos Standard), the future of Tether is uncertain. Will owners of USDT diversify into new stablecoins? If that is the case, we will likely see Tether lose signifigant market cap and retreat from a spot in the top 10 cryptocurrencies. Only time will tell...