Tether: Risky for Crypto?


Let’s talk about Tether.

Tether adds value to crypto.  But is Tether (and the value it brings) at risk of going away? 

In short, yes. 

Tether is being targeted by regulators.  And when (not if) Tether goes down, it’s going to take value out of crypto. 

❓What is Tether? 

For those who don’t know, Tether is a stablecoin. The idea is that it’s stable to the dollar. $1 Tether = $1 USD. When Tether gets 1 US dollar from a customer, it creates one Tether dollar and sends it out into circulation. 

Tether has had many problems over the last few years but its value has remained at roughly $1. And because of this, Tether is now the world’s most popular stablecoin and seeing a BIG spike in use. 

Over $8 billion of Tether is now in circulation, a number that has doubled in only the last few months. It’s clear that Tether is solving hair-on-fire problems. First let’s look at the problems Tether solves, and then let’s talk about one existential risk Tether faces.

🤔Why Crypto Traders & Exchanges ❤️ Tether? 

The first big problem Tether solved was that it gave crypto traders a way to park their money in something stable while they slept. Traders trust Tether as an equivalent to US dollars. But since Tether isn’t regulated, trading it is instant and friction free.

The second big problem Tether solved was for exchanges. By holding Tether, exchanges effectively were given a US bank account where they could store money without the financial oversight that comes with traditional banks. It’s possible that even retail traders in other countries are now using Tether as a de facto US bank account, to avoid the inflation of their own currency. 

🙀Is Tether at Risk? Yes, there’s a target on its back. 🎯

So basically, Tether is trying to digitize the US dollar. And while it’s great for people in crypto who want stable on and off ramps to and from crypto, it’s a threat to regulators. The FED has a monopoly on USD money-printing, and they don’t want competition. 

If you haven’t already read this report from the FSB, it says that stablecoins are a threat to USD because the Fed can’t control them. This is a problem for Tether. 

Why is this a problem? Because unlike Bitcoin, Tether isn’t controlled by math and code. Tether is not censorship resistant. There are people, bank accounts, and companies behind Tether, and this gives regulators simple ways to shut Tether down.

Tether gives everyone in crypto access to the US dollar, while avoiding regulation. Great for crypto, awful for US regulators. And as Tether has grown to a market cap of now over $8 billion, the risk Tether faces is that the FED may shut them down.

What happens if Tether gets shut down? 💸 Goodby crypto value 💸

2020 has been the year of black swan events, and the unthinkable isn’t so out of reach any more. As the 4th largest cryptocurrency, a meaningful chunk of all trading volume comes from people using Tether. If Tether were to be shut down, the effects would be felt across the entire crypto industry. 

Recommended reading - a friend figured out that Tether was likely not backed 1:1 in early 2018 before it was publicly confirmed. Here’s how he did it out - read The Tether Report