Tether is once again a controversial topic. Simply put Tether (USDT) is not a stablecoin. Tether is marketed as a stablecoin that is designed to be pegged to the US dollar at a ratio of 1:1. Yet the value of Tether at times has been below the 1:1 pair as claimed by Tether limited, the Hong Kong based company. One of the benefits of stablecoins is their supposed stability in a land of volatile cryptocurrencies. Especially when there is increased market volatility and volume. As there has been in the past few days, as US equities, particularly Tech stocks have experienced a huge drop, and cryptocurrencies have followed. Yet Tether seems to fail over and over again. Within the past few days, Tether has lost it’s USD peg twice and withdrawals on Terra Network $LUNA were temporarily suspended on Binance. Report from the past week indicate that Tether has been trading at 76 cents. That’s a bigger drop than Bitcoin and Ethereum in the past week. How does a stablecoin fluctuate and have more volatility than non-stablecoins?
The Terra ecosystem currently contains over 100 nativetly built projects. One of these is the UST stablecoin on both the Ethereum and Bitcoin Blockchains. Tether is the biggest stablecoin, and has a volume of $164.9 billion and market cap of $83 billion in the past 24 hours upon writing this. Interesting to note that the volume of Tether is almost double than the market cap. A self published report by Tether back in 2021 showed the Tether was only backed by cash to the tune of 3.87%.
The token is being utilized as a free source of capital for the companies that own and operate Tether, and the liquidity is poured into commercial paper and treasury bills, deposits and other notes to earn interest for the company that controls it. During good times that means the Luna token has soared, and in bad times, has caused the token to absolutely crash and take Tether (USDT) with it.
The Terra Luna token has cratered over the past week:
Compare the charts of USDT vs USDC. One appears stable, and the other is far from it. In case you need to apply a ruler to your screen, one is a straight line, and the other is someone trying to draw a straight line after drinking 5 cups of coffee.
An upcoming report will dive deeper into Tether and show why it is a deeply flawed stablecoin. The company that operates Tether has been under a number of investigations the past few years and has paid tens of millions in penalties. Additionally, we will take a look at the audit firm that is utilized by Tether. In the meantime, do your own research!