Is the confidence in USDT misplaced?

USDT Tether is an attempt to digitalize the United States dollars. United States Dollar Tether, or USDT, is a digital currency closely tied to its fiat counterpart USD. It is released on the bitcoin (BTC) blockchain through Protocol Omni. The value is fixed, or tether, to that of the United States dollar. The idea is that each USD is equivalent to the USDT due to the fact that the exchanges keep a reserve of the actual paper money to keep the USDT in existence. It can be traded, spent, and transferred much like any other cryptocurrency in existence.

The USDT was created to tackle three problems arising from fiat currencies. These are to assist the national currency transfers, provide stable BTC, and have another option for checking. The blockchain can verify the total amount of USDT in the circulation at any time. This means that the overall amount must be equal to that sitting in the bank account utilized by Tether Limited which is used to send and receive money to and from buyers on the Tether platform. The amounts are strictly controlled by specialists who audit the company regularly and check all of the deposits, withdrawals, balances, and transfer reports.*

Why Tether?

Since the idea of cryptocurrency is to have decentralized money which is not tied to any central government or fiat currency, why would anyone invest in just a digital currency which does the exact opposite? More so when the real money is always losing the buying power due to inflation?

USDT, fortunately, provides some of the benefits of cryptocurrency as well, which can be utilized to the benefit of the trader who wants to use United States dollars. This means that every comfort that comes with cryptocurrencies applies to Tether as well. It fits really well into the nature of financial markets due to the fact that the currency it is tied to is in extreme demand. USD is one of the most in-demand currencies out there in the world with all of the international transfers, depts, and etc. being counted in the United States dollars. It, however, lags behind due to international banking technology like transaction fees, times between actual money settlements, and etc.

The digital currency iteration of the centralized fiat money erases these issues by providing the standard digitized currency benefits such as faster transaction times, fewer transaction fees, price stability, and no need to leave money into the exchanges. Let’s break this down:

The transaction times are indeed faster. Considering the fact that USD deposits and withdrawals may take anywhere from 1 to 4 business days to complete when using the traditional banking system or even more if the process is happening on weekends and holidays when the banks are closed the USDT already seems like a better option. The tether transactions are happening in minutes which means a lot for the cryptocurrency traders who want to withdraw and deposit their money as fast as possible to gain maximum profit from the fluctuations.

SWIFT, or Society for Worldwide International Financial Telecommunication, has a fee for every international transaction. This may be anywhere from $20 to $40 or more. This becomes even worse when one is trying to use the currency which is not supported by the exchange, which adds the foreign exchange market (Forex, FX) conversion fee as well as a percentage on the transfer itself. Tether, on the other hand, charges no additional amount of money or fees while transferring money from tether wallets.

Cryptocurrencies are volatile while fiat money is not stable enough as an asset. This means that lots of exchanges support tethers while not supporting fiat currencies.

The tether allows the trader to just cash out at any time. This means that one is not stuck with the risks associated with leaving your money on the exchanges. This is called sidelining, which is possible with tethers but isn’t with fiat money.

How Safe Is It?

The idea behind the cryptocurrency market is that the traders are always playing with the liquidity and volatility of the market to make profits. For example, in March the Bitcoin dropped below $4000 even touching $3700 on some exchanges due to the fact that one of the most popular annual events the NCAA tournaments in the United States has been canceled out of concerns of the novel coronavirus. The pandemic, in general, has been hitting world economies hard but such events usually cause huge jumps in the cryptocurrency market and this is visible with BTC the most. However, USDT on the other hand saw a surge in market capitalization as a result.

Safe havens are financial assets which the investors transfer their investments into to protect themselves from the market turmoil much like the cancellation we discussed above. Usually, these are the US government securities, US dollar, gold, defensive stocks, and cash. Ironically the USDT has also made it into this list as of the late developments. As the tether team has announced on their official tether twitter page the token has surpassed the market capitalization of $5 billion.

Due to this, trading the USDT is becoming more and more appealing to the investors. As a rule of thumb when such events occur, the BTC, Ethereum (ETH), and all other major cryptocurrencies rapidly drop their value and make USDT all of a sudden much more tempting to trade-in. This is due to the fact that the USDT is pegged to a much more stable USD. Although it can be argued that the United States dollar may not be as stable as one may think the idea is that there has never been a drop of 50% in one night has there?