Stablecoins, also known as digital coins that are pegged to a stable asset, are becoming increasingly popular in the crypto space. They are a great way to buy or sell cryptocurrency without the volatility typically seen in the market.
However, there are concerns about the stability of stablecoins. This includes how they are backed and whether they’re actually tethered to something.
Payments
A gizmo of the week: Stablecoins
Tether 160m tetherbrauncoindesk, the first and best known of all of the stable coins (some may call them cryptocurrencies), offers investors a way to store funds in a secure and liquid form without having to worry about the volatility of a speculative asset such as Bitcoin. Tether is a decentralized digital currency that maintains a 1 to 1 peg to the United States dollar and is backed by a company that claims to hold at least $1 of dollar bills in reserve for every Tether 160m tetherbrauncoindesk token in circulation.
The company’s reserves have attracted attention from regulatory agencies as well as the cryptocurrency community. During a period of regulatory scrutiny, the company paid out nearly $60 million in fines to settle two probes alleging it mishandled and misrepresented its reserve levels.
The company also boasts a highly visible security apparatus to guard against hacks and other attacks. It has blacklisted over 563 addresses on several blockchains, including a few containing the prized USDT, and has teamed up with law enforcement agencies to monitor suspicious transactions. It was also the first to freeze three Ethereum addresses with over $160m in tethers on a cold December night. The most important tether story, however, is the underlying technical challenge of keeping that sum of money safe and sound in an encrypted environment.
Lending
Lending is an excellent way to make money with cryptocurrencies. It’s a passive income strategy that lets you earn competitive interest rates. Some lending platforms pay up to 10% for your Tether, so it’s worth checking out.
Stablecoins pegged to fiat currencies typically have a one-to-one ratio of currency reserves to the tokens they’re issued. This is called the “reserve-to-issuance” model. It allows for investors to get their money back if the tokens lose value.
However, a number of issues have arisen in relation to these tokens and their backers. For example, a recent report by the Commodity Futures Trading Commission (CFTC) revealed that Tether’s reserves aren’t entirely backed by dollars. This means that they might not be sufficient in a financial crisis to cover the tokens’ redemptions.
In addition, Tether Limited has run into some legal problems in the past. The company was reportedly involved in a 2018 scam in which it used Tether’s reserves to cover $850 million in losses at its crypto exchange Bitfinex. Although the company paid a $18.5 million fine to settle the case, this still leaves many people skeptical of Tether’s reliability and trustworthiness.
On the positive side, Tether has a reputation for being transparent about its reserves. It publishes reports on how much it holds in cash and other currencies versus the total number of USDT tokens it’s circulating.
Despite these hiccups, Tether is a popular stablecoin that is regularly traded on the world’s largest cryptocurrencies exchanges. It’s also a popular choice for crypto lending and trading because of its high daily trading volume.
Trading
Trading is the process of buying and selling stocks and other assets. Traders can make money by buying low and selling high (going long) or by selling low and buying high (going short), usually over the short or medium term.
Most traders are day traders, which means they focus on short-term trends and news events that might lead them to buy or sell a stock. These traders are often glued to their computer screens and televisions.
They might analyze charts and other market data, or they might use sophisticated algorithms. They might also be able to spot potential merger arbitrage opportunities, or they might buy and sell stocks at the same time to take advantage of price differentials between the two.
Some traders also focus on long-term strategies, such as long-term trend trading, which involves using technical analysis to predict future stock movements. These traders often do not have access to trading or dealing desks at brokerage firms, so they may trade directly with their own accounts.
Stablecoins are a fast-growing category of cryptocurrency, which aim to keep the price of their tokens stable by tying them to a traditional currency. They often are backed by collateral reserves made up entirely or mostly of the pegged currency, which helps stabilize the coin’s value and prevents it from becoming susceptible to volatility like more speculative cryptocurrencies.
In the case of Tether, which has the third-largest market cap in the crypto space, it is backed by $1 of U.S. dollar deposits, according to its website.
But some analysts say Tether doesn’t have enough dollar reserves to stay at $1 — and that a loss of confidence in the currency could cause a financial crisis. In June, Boston Fed President Eric Rosengren called tether “a potential financial stability risk,” and last week, Fitch Ratings warned that a sudden increase in withdrawals of tether tokens could destabilize short-term credit markets.
Unlike day traders, long-term investors are not concerned with current profits and losses but rather they want to see the price of the asset they own move over the long run. These investors often focus on large companies and industries, and they may also be able to spot trends that could signal opportunities for profit.
Investing
Investing can be a lucrative hobby for many people, especially when a crypto market is doing well. If you are lucky, you may even make a million or more. But there are many things you need to know before making your first investment.
Among the many risks is the lack of transparency about a coin’s underlying value. That’s why some investors have turned to stablecoins like USDT, which is backed by a large reserve of U.S. dollars and other currencies.
But tether’s reputation has come under fire in recent months, and investors fear that it could be vulnerable to a “bank run” should the coin lose confidence. This would mean that depositors would rush to exchanges in order to cash out their tethers, destabilizing them and possibly causing a drop in bitcoin prices.
A major improvement was made last quarter, when Tether reported that 44% of its $79 billion in assets were held in safe U.S. government-issued Treasury bills, compared with only 2% in riskier commercial paper when the company first started reporting its asset composition to the public.
Still, investors should not rely solely on tether’s quarterly attestation report, which was published in December 2021, when the crypto market was relatively quiet. Instead, they should have access to a real-time attestation like competitor TrueUSD.
This is because a sudden loss of confidence in a stablecoin could lead to a “bank run” that would destabilize exchanges and cause a panic drop in the price of cryptocurrencies. This is because many traders would pull out their funds at once in a panic over doubts about the coin’s integrity.
To counter the fears, Tether has been pushing for more disclosure and transparency about its reserves. It even settled a New York Attorney General investigation into its finances for an $18.5 million fine earlier this year.
As a result of that settlement, Tether 160m tetherbrauncoindesk has been forced to release quarterly attestations of its reserves. However, it is challenging CoinDesk’s Freedom of Information Law (FOIL) request for documents detailing the composition of its reserves over the past few years. Tether’s lawyer, Charles Michael of Steptoe & Johnson, filed a petition Tuesday to block CoinDesk and other organizations from receiving such documents.
