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USDT is the biggest bomb in the market. This should be the view of the vast majority of people in the industry. When USDT was frantically issued in the first two months, many articles stated that the unrestrained issuance of USDT would lead to increasing risks and a bomb could happen at any time.
This article wants to tell you: We believe that Tether's business model determines that it is difficult for it to go bankrupt. This view does not mean that USDT is compliant or credible, but only illustrates our point of view through some phenomena.
The phrase "Everyone is greedy and I am panicky" has been mentioned countless times. The general idea is that the direction that everyone agrees on may not be the final direction of development.
In the comments of the previous article "USDT: A Peer-to-Peer Electronic Cash System", a reader asked, "Why doesn't Tether collapse?" When everyone thinks that USDT is risky and Tether will collapse, things may really not develop in the direction everyone expects. The real risk of Tether Let's think about this question: what risk does Tether, the company that issues USDT, fear the most? Is it regulation?
In November 2018, the U.S. Department of Justice began investigating Tether to see if they were involved in illegal manipulation of Bitcoin. This was probably the earliest confrontation between Tether and regulators; in April 2019, the New York Attorney General's Office first accused BitFinex and Tether of conspiring to embezzle USDT reserves to make up for a $850 million shortfall, and then sued BitFinex and Tether.
How much impact do these things have on USDT? Let’s look at the price, which is the most intuitive expression. It can be seen that these two regulatory issues did cause fluctuations in USDT, but the maximum fluctuation only made USDT = 0.94 US dollars, with a maximum drop of 6%.
But is 6% the biggest fluctuation in USDT history? Of course not. If you still remember, in October 2018, the term "short position quilt" spread throughout the cryptocurrency circle. At that time, USDT plummeted, reaching a minimum of 1 USDT = 0.85 USD, a drop of 15%, far exceeding any fluctuation in the above figure. At that time, investors who thought that USDT could represent US dollars were completely panicked, and almost everyone was selling USDT, which even led to an increase in the price of Bitcoin.
What happened at that time? It was not the voice of the regulator, but someone discovered that there was a problem with Noble Bank, where Tether placed its USDT reserves. At that time, Noble Bank was exposed to be unable to continue operating and was preparing to sell its business. At that time, there was news that a user wanted to use USDT to exchange for US dollars at Noble Bank, but was rejected by the bank.
The redemption issue was the main reason for the sharp drop in USDT at that time. In other words, what really worries everyone about USDT is not the regulatory issue, but the bank run. People say that Tether misappropriated its reserves, that Tether manipulated the market, and that Tether's reserves were not 100%. Market investors were not afraid. The only thing they were afraid of was a bank run.
This is what Tether fears the most. If everyone wants to exchange USDT for US dollars from Tether, they will definitely go bankrupt.
Then they need to find a way to solve this problem. Tether’s Solution
At present, they have come up with two solutions:
The first one is the most intuitive, and it is written on Tether’s official website. In summary: it increases the difficulty of official redemption. The fee section of Tether’s official website clearly states: If the total amount of fiat currency deposits and withdrawals in the past 30 days is more than 100,000 US dollars, 0.1% will be charged for fiat currency deposits and at least 1,000 US dollars will be charged for fiat currency withdrawals.
This means that if someone deposits USD in Tether and exchanges it for USDT, Tether will charge a fee. If one wants to exchange USDT back into USD fiat currency, one has to pay Tether.
Moreover, according to people familiar with the matter, the process of Tether redeeming U.S. dollars is also very cumbersome and takes about a week to complete, and the redemption is also based on a 1:1 U.S. dollar price.
In summary, if the money simply passes through Tether’s hands, it will suffer a lot of losses when it comes back. This is the first solution.
The second method has not been verified, but overall, this logic is very feasible and is also the most brilliant point of Tether: they took advantage of the regulatory authorities.
Let's think carefully. When the four letters USDT are mentioned, what is the first word that comes to mind? It must be words like "non-compliance" and "regulation". This may be exactly what Tether wants to achieve. They continue to attract the attention of regulators, let regulators investigate, release eye-catching evidence, such as audit certificates that have no legal effect, trigger public opinion, and continue to attract the attention of regulators. All of their actions have only one purpose: to constantly emphasize the relationship between USDT and regulation, so that people will reflexively think of non-compliance and regulatory issues as long as they think of USDT.
The result of doing this is that no one will go to Tether to redeem USDT.
Tether has been targeted by regulators, and USDT has been used for gray industries. If you ask Tether to officially redeem U.S. dollar fiat currency, you will definitely be investigated by regulators. No one wants to get involved with regulators.
The most important issue is that being targeted by regulators means that it is impossible to evade taxes. When Tether officially redeems fiat currency, regulators will definitely investigate the use of the money, whether it makes money, and whether it is profitable. Taxes cannot be avoided.
Therefore, the regulatory feature has become a natural barrier to prevent USDT from being run. The redemption process is slow, the fees are high, there is no premium, there is a risk of being targeted by regulators, and there is no way to avoid taxes. No one will go to Tether to redeem fiat dollars.
This is the most brilliant part of Tether. The most perfect exchange channel for users is OTC: instant deposit, premium, almost no handling fee, the exchange risk of finding a reliable OTC dealer is much smaller than the official one, and tax can be avoided.
Users themselves have blocked the official exchange route and would not even consider it.
This operation has precedents in history, that is, the glorious years when the US dollar was related to gold. After World War II, the US dollar became the hegemon of the world currency, and it was stipulated that 35 US dollars could be exchanged for 1 ounce of gold. However, in August 1971, the Bretton Woods monetary system collapsed, and the US dollar was no longer pegged to gold. At the same time, the Federal Reserve also stipulated that no country, any central bank, or anyone could exchange US dollars for gold at the Federal Reserve. There is still controversy about how much gold reserves the United States has now. For example, Germany wanted to transport back 1,268 tons of gold stored in the United States, but was rejected by the Federal Reserve. Is this very similar to Tether's current situation?
It’s just that the Federal Reserve actively refused and Tether passively refused.
There are three main opinions among those who believe that USDT will collapse: non-100% reserve risk, regulatory risk, and bank run risk.
Now, it is a recognized fact that USDT is not 100% stored in US dollars. Not only is it not all US dollars, the official website also clearly states that Tether accepts legal currencies such as the euro and the renminbi, and no one cares at all.
There is even a phenomenon that you may not have noticed. Glassnode data statistics show that on the day of the 312 crash, Bitcoin outflows from mainstream trading platforms such as BitFinex and Huobi began to accelerate, with 66% outflows from BitFinex and 24% outflows from Huobi. On the surface, it can be understood that investors have left the market or moved their money to their wallets. Is there a possibility that the trading platform has over-collateralized Bitcoin to Tether and exchanged it for the newly issued USDT, and after the crash, the trading platform needs to cover Tether's position to ensure that Tether will not liquidate the collateral, so there is a large-scale outflow of Bitcoin. This is entirely possible, but does it have an impact on USDT? There is no impact, just like MakerDAO and DAI, everyone knows that USDT is still enough for 1 US dollar.
Regulatory issues are unlikely to shake people's recognition of USDT, and frequent regulatory news only causes USDT to fluctuate within a small range.
Now, Tether seems to have solved the most risky problem of bank runs. It is said that USDT has risks, but where are the risks now? |
