Tether - Ultimately the ultimate winner
The "stablecoin war" between Tether (USDT), USD Coin (USDC) and Binance USD (BUSD) - which seemed to become even more fierce after the collapse of LUNA - UST in mid-2022 - finally has an end. extremely quickly, with USDT surpassing opponents with legal "stubbornness" and an out-of-the-way mindset in business activities.
Born in 2014, Tether has a noble mission of solving outstanding problems of the cryptocurrency industry, and... traditional finance. The cryptocurrency industry at this time still does not have a clear shape, no one knows anything about the future, BTC prices sometimes skyrocket, the next day they go underground. Traditional finance has always been the same story - lack of transparency, how do I know where you took my money and what to do?
USDT appears as something “hybrid”, when people first hear the concept of stablecoin, it brings a new feeling, a bit of prestige, but of course there is no shortage of doubts about whether Is "stable currency" really as "stable" as it often claims?
Let's talk a little bit about USDT, as we all know, in essence, 1 USDT corresponds to 1 USD in real life. In other words, USDT is the "USD of blockchain". But this is only true if Tether has enough USD to guarantee the amount of USDT issued to the market, so has there ever been a time when Tether could not meet the definition of "100% backed by USD"?
The answer is yes, in May 2019, Tether made a shocking revelation that only 74% of the total supply of USDT is backed by cash, in this case USD. This number is in contrast to previous commitments made by Tether management, which stated that all USDT was backed by USD. And from that point forward, USDT collateral includes additional US Treasury bills, commercial paper, money market funds, loan assets, and other investments.
The period 2018 - 2019 was probably two turbulent years for Tether. At that time, Tether's parent company was iFinex, which also operated the Bitfinex exchange. Although Tether and Bitfinex were declared completely independent, observers were still skeptical about the relationship between the two companies. . Both have faced accusations that USDT trading activities on Bitfinex have "inflated" the value of Bitcoin, or in other words, USDT has manipulated Bitcoin prices. The incident was so serious that in November 2018, the US Department of Justice investigated Tether and Bitfinex. Although it did not come to a clear conclusion, this incident made the community begin to be skeptical about USDT.
Despite everything, USDT continues to grow to become the strongest stablecoin on the market. With more than 60% of the stablecoin market share, ranking 3rd in market capitalization with 80 billion USD after BTC and ETH, USDT can completely dominate the game, cover the sky with one hand and even swallow everything.
And it became…
From the start, Tether and USDT were a different case compared to stablecoins in the same field, as they were almost all backed by a crypto-related project. For example, USDC is issued by Center – a joint enterprise of Circle and Coinbase; BUSD is supported by Binance in conjunction with Paxos; DAI is developed by MakerDAO. Only USDT and Tether are one and the same, claiming to be a neutral bridge between traditional finance and blockchain.
However, with a young market, this is not necessarily the best scenario for USDT. There have been many times when investors and large funds have threatened to "short" USDT, which means they expect USDT to plummet and lose its peg. Although at that time it had become the most popular stablecoin, the main method chosen by large businesses to "take profits", Bitcoin also gradually became deeply associated with USDT. Expect USDT to collapse, which is tantamount to putting an end to the budding cryptocurrency industry.
- Questioned about asset reserves:
Although known as the world's largest stablecoin, USDT has long been considered a "ticking bomb" for the reason mentioned above - not fully backed by USD. No one knows what will happen to those non-cash reserves, which Tether has never publicly detailed. Remember that Bloomberg also conducted a report investigating the origin of Tether's cash flow, only to come to the conclusion that it was impossible to find evidence to ensure that Tether was holding the assets as the company claimed, also revealing that Tether may be holding commercial papers of Chinese companies, which makes investors even more worried.
Later, Tether announced that it would remove commercial paper from the list of collateral assets.
- Changes in capitalization and collateral assets:
The stablecoin also had times when it suffered a serious decrease in capitalization, such as in May - July 2022, USDT capitalization fell from 83 billion USD to 65 billion USD, equivalent to a decrease of 20%. The event associated with USDT's long slide is none other than the historic collapse of LUNA-UST. In the chaos of May 12, 2022, USDT even fell to 0.95 USD and then quickly recovered, which is probably the only time we have seen USDT finally shaken.
Up to now, after recording a net profit of 700 million USD in the fourth quarter of 2022, plus an expected profit of 700 million USD in the first quarter of 2023, Tether affirms that the collateral assets for USDT have an excess of 1 million USD. .6 billion USD, auditing unit BDO also reaffirmed this.
- Being "beaten" by many investment funds:
Taking advantage of the domino effect from LUNA-UST, many investment funds have even allied together to spread bad rumors such as USDT is not securely guaranteed and has an "ambiguous" lending relationship with Celsius and Three Arrows Capital fund. All just to hurt USDT's liquidity so they have the opportunity to pool tokens at lower prices.
With investors turned away and competitors plotting to knock them down, overcoming all of this, USDT has truly entered the market because of the value it truly creates - convenience, stability and transparent. USDT was born to solve exactly what the market needed at that time.
In the end, looking back, it was all just tests like "gold in fire" for Tether.
Also talking about gold, perhaps not many people know about Tether Gold, this is one of Tether's latest efforts to touch the fundamentals of the asset with the deepest connection to humanity. Tether Gold was created to meet the need for gold investment but through a coin anchored to the blockchain, called XAUT.
Tether Gold is not heavily promoted, but perhaps this is the direction of Tether's way of developing XAUT, slowly but surely. There is a closer comparison like this: BTC > Gold > USD. So if you have to sell BTC, perhaps the BTC/Gold trading pair will come before BTC/USD.
According to Tether's latest reserve report (as of December 31, 2022), the company confirmed that the majority of reserves for USDT are currently in the form of short-term US Treasury bills, while cash accounts for a smaller proportion. Tether Chief Technology Officer Paolo Ardoino explained this as follows:
“When it comes to stablecoins, people think it should only be 100% backed by cash. But first, no bank will let you do that. Since cash is an uncertain commodity, banks may not always have it available to you. Like the recent Silicon Valley Bank incident, people think cash is good, but our competitors are still stuck with $3.3 billion.
Therefore, Tether chooses to supplement short-term bonds and market funds to always ensure USDT against unexpected incidents.”
He continued:
“Do you remember when UST plunged, Tether disbursed more than 7 billion USDT within two days, which was an impressive and unprecedented number. At that time, we used treasury bonds to support USDT, they are short-term assets, we sold it with zero inflation rate, without any loss, Tether successfully paid users 7 billion USD in a short period of time.”
Analysis of Tether's formula
During the nearly 10-year journey, have you ever wondered what created Tether today, why USDT still stands strong while other stablecoins were knocked down after just one or two FUDs? All will be explained. Awarded by CTO Tether himself right here.
- A correct mindset right from the starting line:
Chief Technology Officer Paolo Ardoino emphasized that from the beginning they did not intend that USDT would one day replace BTC, but that Satoshi Nakamoto's vision when creating BTC became the inspiration and "guideline". " for Tether to develop USDT.
All share the same destination, transparency and disclosure of transaction cash flows, this is the blind spot in the traditional financial market as mentioned. In addition, cryptocurrency in general also has the mission of reaching "bankless" corners, underdeveloped areas that do not have access to the banking system, owning a phone connected to the network can give them another life.
- Instead of waiting for success, they think about failure:
Tether did not enter the market with only good motives to succeed, they have their business formulas. Paolo said Tether always considers bad cases that can happen, building an effective risk management system, instead of just thinking about what it can achieve.
- When the people who make it "really" believe in it:
And finally, Tether is proud that the people working in the machine truly believe in USDT's mission. The "harmony" factor combined with a sound business strategy has kept Tether stable after nearly 10 years.
Ignoring the "rogue" past, USDT has emerged as a "storm shelter" for most investors before big waves from the market, crises that seemed to engulf everything. At this time, USDT unconsciously became a monument, solid and proud.
Like Binance, USDT is the winner and most favored in its field, at least for now. The stablecoins that appeared later, even though they had a grand launch and were backed by this or that guy, are now only considered an additional piece of the puzzle to diversify the stablecoin landscape.
And the truth is "Nothing can replace USDT anymore".
In fact, Tether has two main elements similar to a bank, including: Reserve Assets (USD) and Liabilities (USDT). Many people compare that Tether is no different from an unregistered bank, partly because the amount of collateral is mixed, making it seem... less stable than a bank.
To some extent, we must admit that Tether's operating model is not like a traditional bank. If banking regulations are applied to Tether, it will be even more impossible.
But to make the following hypothesis, we will temporarily consider Tether as a bank. With a current capitalization of more than 80 billion USD, Tether is approaching the top 20 largest banks in the world. Imagine if Tether continued to grow and grow, it would even reach the top 5, alongside names like JPMorgan, Bank of America or ICBC. What will Tether look like at its peak, is the cryptocurrency market at that time in step with Tether's growth. And more realistically, will banks let Tether climb there?
Scenario #1: Bankers find a way to restrain Tether
Big Tether popping out of the cryptocurrency framework is probably a scenario that not many people have thought of. But if that happens, the banking world will feel threatened and find ways to restrain Tether. It's like a country's territory being violated, thinking that the enemy will drain all the national wealth and tame people to their city.
So how will they hold back? The only thing that is possible is probably "legal", which is also the fatal weakness of crypto, a suitable set of regulations is something crypto does not yet have and must still be anchored to traditional laws. Since everything is still loose and unstable, the financial community and even the Tether bank are cooperating, it will only allow Tether to develop to a certain limit.
Because after all, most of the USDT collateral is still in the hands of the bank.
Scenario #2: Banks start issuing their own stablecoins
It's no exaggeration to say, but blockchain and ternary accounting are the future of the financial industry. Tether holds an important key that banks do not have - decentralization. The image of Tether right now is like a savior trying to replace a system that has been around for hundreds of years, everything operates accurately down to every link.
Although the prospect of a bank humbly recognizing Tether may not happen, saying a bank integrates blockchain and issues its own stablecoin system is entirely possible. The proof is that many large banks in the world have been doing this.
Back to reality, Tether really shouldn't be classified as a bank, as Tether Chief Technology Officer Paolo Ardoino said in the interview:
“I don't think Tether should be seen as a bank, Tether is better than them.”
Paolo's suggestion here is that the stablecoin space should have its own set of regulations. A set of regulations for the asset classes it represents. So that when a bank run occurs, investors are still guaranteed to withdraw assets without any problems, like how USDT provided more than 7 billion USDT in withdrawals in 48 hours during the period when UST plummeted.
Conclusion
The most difficult thing about a prosperous economy is not finding ways to generate more wealth, but how to maintain that prosperity, long term.
If you want to sit on the throne, you must be able to bear the weight of the crown.
How long will USDT maintain this form? 10 years is enough for a product to mature and be recognized by the world, and can Tether be stronger than a bank? No one can predict anything, but as long as Tether sticks to its original missions and continues to develop with its existing internal resources, at least in the near future, Tether will still be a station and a strong arm. market burden.
Imagine Tether as the character Holden Caulfield and the market as a bunch of shocked kids in The Catcher in the Rye. Tether would be the one there guarding the kids running and jumping so that no one would fall into the abyss while playing. without caring where they are running to.
![[ℕ𝕖𝕧𝕖𝕣] 𝕊𝕖𝕝𝕝 𝕐𝕠𝕦𝕣 𝔹𝕚𝕥𝕔𝕠𝕚𝕟 - Did This Poor Baby Make A Profit On The BTC He Sold?](https://cdn.bulbapp.io/frontend/images/255151e6-9e83-4151-9644-80af06e53b74/1)
