Let’s start our review with one of the most popular stackcoin coins, USDT Tether. For a long time, this coin has been in competition with the major cryptocurrencies, and it is tied to the value of the U.S. dollar.
More often than not, active traders resort to using such staplecoins to enter and exit cryptocurrency exchanges, it is convenient and inexpensive. The competition is that these coins along with the most popular tokens can be used for quick transfers, while having an advantage, and are unstable in price. They can also be used to build some decentralized finance projects.
However, some stabelcoins can not boast of their stability, due to that the regulatory organization tries as much as possible to introduce control over them. Sometimes it is worth thinking about the fact that using such stable tokens carries some risks.
Imagine if all users of stabelcoins decided to cash out their funds, what would happen then?
As for the Tether cryptocurrency, it is backed by a dollar, each token is backed by one U.S. dollar, which is not stored in a cryptocurrency exchange.
There are 68 billion Tether units circulating around the world right now, which is exactly how much customers have given up, provided that when they want to exchange them back for fiat money, they can do so for no reason at all. But, there is a possibility that when the new regulations are put in place, customers will decide to cash Tether back into dollars.
As of today, we know that only less than 3% of this token’s reserves are held in cash. Some of it is held in securities, and it is not known which ones.
For example, New York Attorney General Letitia James said that the information that Tether is fully backed by American dollars is untrue, thus questioning Tether’s practices. TUI, suggested that this cryptocurrency is a bubble in case absolutely all users want to withdraw their funds, they just physically can’t do it. This could lead to a domino effect and this is what could happen:
The collapse of some crypto exchanges
The end of the DeFi era.
Lack of confidence in cryptocurrency from investors and holders
In doing so, millions of people around the world could lose a significant portion of their funds and that’s not all. The same effect could spread to the credit markets, Fitch Ratings said last summer. Also this company allowed the stabilization of short-term lending market in consequence of the withdrawal of funds from USDT.
Of course, Cryptoinvest understands all the risks, because the mass of publications warns in every possible way about the instability of cryptocurrencies, but the risk that it is associated with stable coins, the so-called Stablecoins is difficult enough to consider. We never know what’s really going on, the rate of stabelcoins is always stable.
If we can’t see the danger, it doesn’t mean there isn’t any. An example is the global crisis of 2008, before which, investors thought funds were a safe position, it turned out that they were not.
A good example is the collapse of Lehman Brothers, when that company declared bankruptcy, I one famous fund, or rather its securities went below one dollar, and when the fund began to collapse, more and more investors started to take their money out, there was a so-called chain reaction.
During this crisis, there was no stability without government intervention and it wasn’t until 8 years later, in 2016, that the Securities Commission instituted additional investor protection rules.
Because of this, many regulators are eager to impose new requirements and rules on stablcoins and actions quite logically, do not believe that if these coins have the same principle as funds, they should be regulated in the same way.
USDT – This is far from the only stabelcoin
Of course, Tether is the largest coin, but the number of alternatives is growing continuously. For example, the so-called digital dollar USD Coin has appeared. One of the creators of this coin is the Coinbase crypto exchange, which states that each USDC is backed by one dollar, and the funds are stored only in the accounts of banks, which are under the American regulation. For example, according to July data, this token held 61 percent of its funds in either cash or government fund securities.
Note that not all stackablecoins are backed by fiat currencies. For example, Cardano cryptocurrency recently launched a new arrow project called DJED. This cryptocurrency keeps stable price by either buying or selling assets when needed.
The flow of Tether cryptocurrency users could be helped by the distribution of investor assets to other stackablecoins. If, for example, the largest Stablecoin is launched now, it could be very damaging to the entire market, as there will be a flow of capital from Tether. On the other hand, the less impact Tether will have on the market, the less risk there will be of subsequent processes.