USDT is the biggest thunderbolt in the market. This should be the opinion of the vast majority of people in the industry. During the crazy additional issuance of USDT in the first two months, many articles stated that such an uncontrolled additional issuance of USDT is more and more risky. Thunderstorms can happen at any time.
This article wants to tell everyone: We believe that Tether’s business model makes it difficult to thunder. This point of view is not to endorse the compliance or credibility of USDT, but to illustrate our point of view through some phenomena.
The phrase “people are greedy and I panic” has been mentioned countless times to the effect that it is a direction that everyone has identified, and it may not be the final direction of the development of things.
In the last post on “USDT: A Peer-to-Peer Electronic Cash System”, a reader asked, “Why doesn’t Tether thunder?” When everyone thinks that USDT is risky and Tether will thunder, things are really possible It won’t go in the direction that everyone expects.
Tether’s real risk
Everyone thinks about a question, what risk is the most afraid of the Tether company that issues USDT. Is it regulation?
In November 2018, the U.S. Department of Justice began investigating Tether companies for their involvement in the illegal manipulation of Bitcoin. This is 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 misappropriate USDT reserves to make up for a deficit of $850 million, and then sued BitFinex and Tether.
And 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 lead to fluctuations in USDT, but the maximum fluctuation was only USDT=0.94 USD, a maximum drop of 6%.
But is 6% the biggest volatility in USDT history? Of course not, if you still have an impression, in October 2018, the word “short position quilt” spread all over the currency circle. At that time, USDT fell sharply, and the minimum reached 1 USDT = 0.85 US dollars, and the decline reached 15%, far exceeding the picture above. any fluctuation. At that time, investors who thought that USDT could represent the US dollar were completely panicked, and almost everyone was selling USDT, which even caused the price of Bitcoin to rise.
And what happened then? It was not the voice of the regulator, but someone discovered that there was a problem with the Noble Bank where Tether placed the USDT reserves. At that time, the Noble Bank was revealed to be unable to continue operations and was preparing to sell the company’s business. At that time, there was news that some users wanted to use USDT to exchange USD at Noble Bank, but the bank refused.
The issue of redemption is the main reason why USDT fell sharply at that time. In other words, what USDT really worries everyone is not a regulatory issue, but a run. It is said that Tether misappropriation of reserves, that Tether manipulates the market, that Tether reserves are not 100%, market investors are not afraid, the only thing everyone is afraid of is a run.
This is what Tether is most afraid of. If everyone had to exchange USDT from Tether to pay USD, they would be in a storm.
Then they need to figure out a way to solve this problem.
At present, it seems that there are two ways they have come up with:
the first one is the most intuitive, and it is written on Tether’s official website. In conclusion, it increases the difficulty of official payment.
The fee section of Tether’s official website clearly states that the total amount of deposits and withdrawals in fiat currency in the past 30 days is more than $100,000, 0.1% for fiat currency deposits, and at least $1,000 for fiat currency withdrawals.
This means that if someone stores US dollars in Tether and exchanges them for USDT, Tether charges a fee. If they want to exchange USDT back to US dollars, they have to give Tether a sum of money.
And according to people familiar with the matter, the process of Tether’s redemption of US dollars is also very cumbersome, it takes about a week to complete, and it is also paid at a price of 1:1 US dollars.
To sum up, if this money is simply passed through Tether’s hand once, it will lose a lot when it comes back. This is the first way.
The second method has not been verified, but in general, this logic is very feasible, and it is also the most brilliant thing about Tether: they take advantage of regulators.
When we think about it carefully, when we mention the four letters of USDT, what is the first associated word that comes to mind? It must be words like “non-compliance” and “regulatory”. This may be exactly what Tether wants to achieve. They continue to attract the attention of regulators, allow them to investigate, and release shocking evidence, such as audit certificates without any legal effect, arouse public opinion, and continue to attract the attention of regulators. All actions have only one purpose: constantly emphasizing USDT The relationship with supervision makes people think of non-compliance and supervision problems as long as they think of USDT.
The result of 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 production. If you ask Tether to officially exchange US dollars and fiat currencies, they will definitely be investigated by regulators, and no one wants to get involved with regulators.
The most important issue is that being targeted by regulation means that tax avoidance is impossible. When Tether officially redeems fiat currency, the regulator will definitely investigate the use of the money, investigate whether it is profitable, whether there is profit, and taxes cannot be avoided.
Therefore, this feature of supervision has become a natural barrier for USDT to not be run. The payment process is slow, the handling fee is high, there is no premium, and there is the risk of being targeted by regulators, and it is impossible to avoid taxes. .
This is the best part of Tether. The most perfect exchange channel for users is OTC: instant arrival, there is a premium, almost no handling fee, the exchange risk of finding a reliable OTC dealer is far smaller than the official one, and it can avoid taxes.
Users themselves blocked the official exchange route and would not consider it at all.
There is also a precedent in the history of this operation, that is, the prosperous 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. But in August 1971, the Bretton Woods monetary system disintegrated, the dollar was no longer pegged to gold, and the Federal Reserve also stipulated that no country, any central bank, or anyone could exchange dollars for gold at the Fed. There is still controversy about how much gold inventory the United States still has. For example, Germany wanted to return 1,268 tons of gold from the United States to its own storage, which was rejected by the Federal Reserve. Is this similar to Tether’s current situation?
It’s just that the Fed actively refused, and Tether passively refused.
Those who think that USDT will thunder, there are three main types: non-100% reserve risk, regulatory risk, and run risk.
Now, it is a recognized fact that USDT is not stored in 100% U.S. dollars. Not only is it not all U.S. dollars, but the official website also clearly states that Tether accepts fiat currencies such as EUR and RMB, and everyone does not care.
There is even a phenomenon that you may not have noticed. According to the statistics of glassnode, on the day of the 312 crash, Bitcoin from mainstream trading platforms such as BitFinex and Huobi began to flow out at an accelerated rate, with BitFinex outflowing 66% and Huobi outflowing 24%. On the surface, it can be understood that investors have left the market, or the wallet has been mentioned. Is there a possibility that the trading platform over-collateralized Bitcoin to Tether and exchanged the additional USDT, and after the big drop, the trading platform needs to cover the position of Tether to ensure that Tether will not liquidate the collateral, so there is a big Bitcoin outflows of scale. It’s entirely possible, but does it matter for USDT? There is no impact, just like MakerDAO and DAI, everyone knows that USDT is still enough for 1 US dollar.
Regulatory issues are also difficult to shake everyone’s recognition of USDT, and the frequent regulatory news only makes USDT fluctuate in a small range.
Now, the most risky run on Tether seems to be solved by Tether as well. It is said that USDT has thunder, so where is the thunder now?
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/usdt-will-not-thunder/
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