Tether (USDT +0.00%) has quickly grown to become the biggest stable-value cryptocurrency (stablecoin) globally, with a market cap of over $68.8 billion. Each USDT is supposedly pegged to the U.S. dollar on a 1-to-1 ratio, but there are now Tethers for the Euro and Yen as well. Indeed, its use has grown rapidly. For example, you could take profits after a record bull run by turning your cryptocurrencies and altcoins into USDT on almost any exchange (spot or decentralized).
You could also pledge crypto collateral and take out an asset loan denominated in USDT. This enables the continual compounding of your investments while giving you cash to handle everyday expenses. Moreover, investors can also lend out their USDT to borrowers and earn interest. So what could be so controversial about this popular innovation?
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Bears at full throttle?
Last week, Bloomberg published a bombshell report questioning if sufficient USD reserves were backing USDT. This is because most of the fiat money is allegedly stashed in offshore accounts with obscure reporting requirements. However, as damning as the report was, the value of Tether remained stable at $1 after its release. It is in part due to the release of a timely audit performed by Moore Cayman on behalf of Tether Limited, the token's developers. The accountants concluded that the firm's assets backed 100% of USDT.
Piercing the shroud
In short, investors can trust their money held in Tether. At the end of the day, its business model is logical. Users deposit U.S. dollars via their bank account/credit card on the official Tether website and are credited USDT to a digital wallet. One can then move the USDT to an exchange for trading. So, if an investor wants to take profits, they can redeem their USDT for USD on the site to be credited their funds in USD.
The audit revealed Tether had (at that time) around $62 billion in total assets (deposits) and $62 billion in digital USDT tokens (redemption liabilities). Of course, if the two numbers didn't match up, then Tether would be in big trouble, but that's obviously not the case.
So what now?
Tether is becoming an exciting new edition to the emerging $215 billion decentralized finance (DeFi) space. For starters, investors can earn over 10% interest per year on Tether savings accounts, which is a far better deal than they can get by putting their hard-earned USD at a bank. This is largely thanks to the burgeoning cryptocurrency space, where certain developers need to take out loans to build their projects. There's also the practice of lending out Tether directly for similar levels of interest. Lending platforms require borrowers to put in collateral in case they don't back the funds -- so lenders take all. Overall, there's never been a better time to explore the possibilities of USDT for either crypto trading or earning a fixed income.
