Oct 20, 2018
A “stable coin” is a digital representation of a normal dollar / fiat unit, created to benefit from the inherent advantages of blockchain which include being peer-to-peer, digitally-native, and cryptographically secured – all while circumventing the wild volatility of other crypto-currencies such as Bitcoin.
The earliest and most ubiquitous “stable coin” to-date has been Tether, otherwise known as USDT, which is supported by the Bitfinex cyrpto-exchange. But this week, the market saw one Tether unit trade as low as 83 cents per dollar, an unsettling move for a coin that is supposed to follow the value of its underlying asset in 1 for 1 fashion.
So what can we infer from Tether becoming “untethered” from its US Dollar peg? And why did other digital assets rally in the face of the news, rather than drop as expected?
In its simplest form, the Tether drawdown was simply a run on the bank – market participants are doubting USDT’s long term viability and are irked by Bitfinex’s lack of audit to prove the existence of the US Dollar reserves that supposedly back Tether. The landscape for stable coins has also continued to become more competitive, with regulated stable coins coming online including the Gemini dollar, Paxos, Basecoin, and TrueUSD.
As these currencies have more visibility, many participants sold their Tether under the belief that it would be de-listed on exchanges in favor of one of the other “stable coin” alternatives. As a result, a counter-intuitive rally occurred driving up crypto prices nearly 10% as investors swapped out of their USDT and into other cryptos.
With Tether on such shaky ground right now, we will have to see what type of USDT "magic" that Bitfinex can pull off...
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