However, Tether’s recent frequent minting with no backing has raised more concerns. The stable coin minted $3 billion USDT last month and $1.5 billion recently. This article explains the reasons behind the minting and the worries of investors.
Tether Mints $1.5 billion of USDT
Stable coins play a significant role in Crypto markets. Tether and other stable coins contributed greatly to the bullish run of Bitcoin, Ethereum, Dogecoin, etc., in the past few years. This means that a potential stable coin collapse would affect a good number of traders. However, the most preferred stable coin currently is Tether and its frequent minting without backing makes most investors worry.
The reason is this: crypto is highly volatile and every investor wants a risk-free investment. But should investors cash out of Tether or move from Tether to other cryptos, since Tether represents a potential ‘bank run’ at the moment? If this happens, Tether will need to liquidate some part of its non-cash assets.
Moreover, Tether minted the last $1.5 billion USDT as a result of the big losses experienced in the crypto market. People who liquidate their other crypto holdings have many of them converted into Tether and other stable coins.
What Does This Imply Generally?
Tether minting more USDT coins without backing implies that it doesn’t hold real dollars for each of the coins. This is similar to banks that don’t hold each customer’s account in a safe vault where it stays for years. Tether and banks invest those customers’ assets to generate more funds. While banks use various avenues for investments, stable coins mostly engage in money markets and high liquid cash equivalents.
Since cryptocurrencies are volatile, these short-term investments with high liquidity are dicey. Although Tether is not a central bank, nor regulated like one, it still maintains its trades as equivalent to a dollar. Tether is only regulated by the British Virgin Islands. Amidst all the concerns about the stable coin, crypto exchanges need it to exist.
It’s useful to investors because it helps them avoid the extreme volatility of other cryptos. USDT as against the dollar reduces transaction costs and delays that affect trading in the crypto market.
Tether Limited may not be able to back all the minted USDT in circulation with dollars even as a stable coin provider. They have always been accused of minting additional Tether to pump the Bitcoin market, although there is no conclusive evidence yet. However, this controversy surrounding the recent minting of $1.5 billion USDT without backing only adds fuel to the burning fire.
The market is going through a bearish phase, with top cryptos losing most of their gains. With the high crypto volatility, a collapse of Tether or other major stable coins would wreak havoc on the entire crypto space. Despite Tether’s frequent clashes with regulatory agencies, investors wouldn’t want it to collapse.