USDT is not that reliable. What can you do with it?
USDT or Tether (by the name of the issuing company) is the most popular and capitalized stablecoin. As of the end of March 2022, USDT confidently holds the third position in terms of market cap, slightly exceeding $80 billion. Initially, USDT appeared in the bitcoin blockchain (Omni layer protocol), then on the ERC-20 protocol in the Ethereum blockchain, TRC-20 in the Tron blockchain, and then in the EOS, Algorand, Bitcoin Cash (Simple Ledger Protocol) blockchains and on the Liquid Network. It is fair to call Tether a tokenized dollar, it is traded on most cryptocurrency exchanges, and its rate is really always close to one US dollar.
A stablecoin is a token pegged, as a rule, to any real currency in a ratio of 1 to 1. First of all, it is a convenient tool to get out of the risk in the cryptocurrency market. For example, if you close cryptocurrency positions in time before the fall and exit in USDT, it’s equivalent to entering the cache to sit out a turbulent time, and then re-enter the market at the bottom. USDT allows you not to withdraw funds to fiat, but to leave them on exchanges or in wallets when the market situation is not in favor of cryptocurrencies.
Dark pages of Tether
The history of Tether began in 2012, but its name appeared as a result of rebranding only in 2014. Tether replaced Realcoin, which in turn replaced Mastercoin. At the beginning of 2015, Tether was listed on the Bitfinex exchange, while it soon became clear that the company Tether Holdings Limited, which is behind Tether, was founded by Bitfinex employees. The projects’ affiliation had an extremely negative impact on the USDT reputation and led to several lawsuits. In particular, in 2019, Bitfinex was charged that, having suffered losses of $850 million, it concealed them by using Tether collaterals to cover the damage. In 2021, as part of the settlement, the companies entered into an agreement with the New York State Attorney General’s Office to pay $18.5 million in favor of the state.
Nevertheless, the issue of full USDT collateral remained on the agenda. In May 2019, the chief lawyer of Tether Limited, Stuart Hoegner admitted that USDT is backed by reserves by 74%.
In 2021, the company was fined by the US Futures Trading Commission (CFTC) for a total amount of about $40 million «for making untrue or misleading statements and omissions of material fact in connection with the U.S. dollar tether token (USDT) stablecoin».
The total number of claims against Tether and Bitfinex amounted to about $1.4 trillion, some of which were rejected by the court.
In August 2021, Tether published a report by the audit firm Moore Cayman, which confirmed that USDT is fully backed by assets. However, the share of cash and bank deposits in reserves was 10%, and 49% of them consisted of commercial securities.
The research firm Hindenburg Research questioned the reliability of information about Tether’s reserves and offered a $1 million reward for disclosing previously unknown information about them.
In turn, Bloomberg found that USDT was particularly backed by short-term loans to large Chinese companies and loans to crypto landing platforms.
However, for all its importance, the issue of full USDT collaterals is secondary. The main danger of the USDT is the SEC’s uncertainty about the stablecoins viability as a class against the CBDC prospects, the state’s digital currency. The head of the US Federal Reserve System Jerome Powell questioned the need for stablecoins after the dollar digital version appeared. He also pointed out the lack of a regulatory framework for stablecoins and expressed doubts about the possibility of integrating them into the financial system.
Taking into account all of the above, it is obvious that the USDT risks are very significant, and though it is quite difficult to imagine an instant Tether extinction, under unfavorable circumstances certain losses in USDT are much more likely than, for example, losses in bitcoin or other traditional cryptocurrencies. Сonsequently, the strategy of long-term USDT ownership looks quite risky.
What is really reliable now
The Minto project has implemented one of the ways to avoid the stablecoins’ risks , offering to convert USDT into a tokenized bitcoin hashrate. Owning BTCMT tokens of the Minto project is equivalent to owning mining hardware of the respective mining power in the ratio 100 BTCMT = 1 TH/s. Unlike classic stablecoins, BTCMT is backed not by financial assets, but mining infrastructure, which allows their holders to receive daily bitcoin rewards.
By buying BTCMT tokens for USDT, users first save and supplements cryptocurrency reserves, since as of Q1 2022, BTCMT tokens gave their holders an APR (payback per year) of about 60%. Secondly, they significantly limit the USDT loss risks: dubious collateral and the American regulator’s distrust.