Tether: Perhaps Still A Crypto Dollar Worth The Risk To HODL

Tether - A Crypto Dollar
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Tether claims to be a “stablecoin” – a hybrid between fiat and crypto. The value of Tether remains pegged, rather tethered to that of fiat currencies. The currency most frequently used by Tether is USD₮. Tether is positioned as an equal to the US Dollar, the reserve currency recognized by the world. To elucidate further, one USD₮ is designed to be the exact equivalent of one US Dollar, not one cent more or one cent less! Thus, Tether is a crypto dollar for all intent and purpose, at least so far as its value is concerned.

You have also perhaps noticed that US Dollars are not acceptable in some crypto exchanges like Bitfinex, though they are open to markets apparently denominated in US dollars. Similarly Bitcoin trades against USDT on crypto only exchanges like Bittrex and Poloniex. The USDT prices on these exchanges are generally close to prices seen on exchanges supporting USD like Kraken or Coinbase. Wondering how exchanges that are apparently based exclusively on cryptocurrencies run the USD markets? Well, the answer to that question is Tether. ₮ is the Tether symbol and USD₮ is its ticker.

Other Fiat currencies used by Tether

Tether also uses the Euro, styled as EUR₮ and soon the Japanese Yen is likely to be roped in as JPY₮. Importantly, you should also know that while Tether users remain protected from volatility in the cryptocurrency markets, they are indeed exposed to price fluctuations in the fiat currencies that are pegged to tether. For instance, if an unlikely event rattles the fiat currency markets and the USD loses half its value overnight, the value of your USD₮ holding would also have dropped in the same proportion as the USD.

The Technicals

Technically speaking, Tether is an Omni Platform based crypto which many other digital assets also use and is anchored to Bitcoin blockchain. Assets declared as holding value is generally the privilege of central banks with government backing. Therefore, if Tether claims their tokens to be worth $1, that statement is false in the absence of a provable basis. To put it differently, if USD₮ does hold a value, and more so, a steady value, such a value must have the backing of real reserves denominated in USD. If 1 USD₮ is worth $1, at any given point in time, it should be redeemable for $1 of the fiat currency. Presently, the USD₮ can be directly converted to USD through the Kraken exchange. Similarly when an approved client sends USD to Kraken’s bank, it should be convertible to USD₮ @ $1 per ₮. The USD-USD₮ peg maintains this mechanism and the indirect conversion of the USD to USD₮ further facilitates this through intermediate cryptocurrencies, primarily, the Bitcoin. Summing up, the sole reason for 1 USD₮ to be actually equal to $1 is because the exchanges main dollar reserves to back up every USD₮ that exists. However, there are some questionable claims on the website of Tether. The mechanism outlined above demonstrates that Tether is entirely and unavoidably centralized entity. The system is also dependent on the capability of Tether and its willingness to keep maintaining the peg. For instance, when Kraken exhausts the USD allocated to its customers seeking to sell USD₮, Tether must supply or promise to supply Kraken the required USD in a reasonable space of time. Failure to do so will cause the peg to “slip.” Ultimately, Tether will be dependent on continuing legal permissions as well as healthy financial relationships.

Tether prices are less volatile

Tether prices do not fluctuate like other cryptocurrencies and fluctuation in prices is the main reason behind the growing popularity of the crypto market. So, why should someone invest in a crypto currency whose prices remain rather stable with no dumps, pumps or bubbles? Undoubtedly, Tether represents an odd coin! Yet, remember that Tether users should provide a customer verification which condition is absent with many other cryptos. Further, owning Tether is more like keeping your money in bank account that earns no interest. How then do you use Tether which is apparently more risky compared to the regular cryptos and offers hardly any window of financial gains?

Tether is extremely useful for investors and traders

As we all know USD deposits or withdrawals from foreign exchange counters often involve about 4 business days before the funds can be accessed by the customer. Now, if you also initiate a transaction over weekends or holidays, your wait time could extend further. In contrast, a Tether transaction takes under a few minutes. For those who trade in cryptocurrencies in particular, this is a huge advantage because they can rapidly move funds to gainfully use arbitrage opportunities.

Further, there is also the SWIFT charges when you use a fiat currency which is generally upward of $20 and averaging to about $30. Again, for those using a currency that a particular exchange does not support, the banks charge an additional fee for Forex conversion plus a percentage on the amount transferred. In sharp contrast, when you transfer funds between tether wallets, the transaction fee is zero.

In conclusion

As we write this, Tether is caught in a sea of allegations and misgivings perhaps, including that Tether artificially bumped up Bitcoin prices in recent weeks and a “bloodbath” could be in store for investors. Yet, we cannot take away the advantages of the unique approach Tether has taken adopted and if Tether can rise above its turbulent times, it could present a huge advantage for those who trade in smaller altcoins.

Caveat emptor!