Let’s finally admit it: #Cryptocurrency prices tanking from $64k around $30k was a buzz kill. For many traders, it was gut-wrenching and a cause of great trepidation.
If you bought at the top, you’re officially down over 50 percent.
Crypto volatility is as old as the asset itself. It makes this space all the more endearing.
Stablecoins Are Seen as Safe Haven
Presuming you bought at $64k and started to take the hits of a sliding market—the easiest way to cut your losses would have been switching to fiat or perhaps, stablecoins.
Crypto trading for fiat and vice versa is not for everyone because most fiat is equally volatile or weak. That is a fact unless you are domiciled in the US, Europe, or some parts of Asia (not China, for obvious reasons). Most crypto traders prefer to seek refuge in stablecoins. The most popular of them all is Tether, USDT, issued by the now infamous Tether Limited (we’ll get to that later).
Stablecoins, as the name suggests, are just that; stable. They are a means of providing refuge in the face of volatility in the crypto scene. After all, the question of volatility is in the public domain now.
Regulators are, in fact, worried when newbies plunge into crypto from the deep end because of volatility. The same is why some regulators are wary of high leverage in some derivatives crypto exchanges because, well, high leverage on a highly volatile asset is a recipe for disaster.
By definition, stablecoins like USDT are designed to track fiat currencies—mostly the world’s reserve currency, the US Dollar—subsequently enjoying its perceived comfortably “low volatility.”
Therefore, theoretically, a single USDT equals one USD since each stablecoin is backed by fiat—or its equivalents, which might include treasury bills and other highly liquid assets (Bitcoin in the mix? Maybe).
How is Tether Backed?
The issuer of USDT claims USDT is backed sufficiently, and there should be no alarm as to the liquidity of the world’s largest stablecoin issuer.
At least riding on trust, Tether Limited has minted over $62billion worth of USDT across several blockchains, including Ethereum, Tron, Algorand, Omni Protocol, and more, at the time of writing. Soon, even fans of Polkadot will have unfettered access to USDT, inevitably priming its DeFi ecosystem.
As popular as USDT is, even forming the main cog of the wheel that turns DeFi and crypto, there have been concerns. Indeed, some supporters may choose to hide their heads in the sand while others just brush them off. Nonetheless, the management team can’t just wish the accusations away.
For instance, even at $62billion, the issuer of USDT is yet to issue an official audit report from any of the top four auditing companies.
The DeFi and crypto world will be relieved if there is a single paper from any of these heavyweights determining that each USDT in circulation—all $62 billion—is backed, sufficiently, and with incontrovertible evidence.
$62 Billion is a Huge Amount to Claim is Backed
An audit is what traders and DeFi masters want. However, all we have is lip service and confirmation from legal firms in the past.
This year, Moore Cayman, a periphery audit firm based in the Caribbean, issued an attestation (not an audit report) saying Tether Limited is liquid and each USDT fully backed. According to the auditor, by February 28, Tether Limited had at least 35.28 billion in total assets against $35.15 billion in total liabilities.
Unfortunately, the attestation isn’t enough and can’t convince critics who prefer to stay clear of the stablecoin. An audit, if Tether Limited agrees to conduct one, will dig out potential risks. From this information, a user can choose to either stick with USDT’s liquidity or flow out in droves to alternatives like CENTRE’s managed USDC.
Assuming that USDT turns out to be a well-elaborated scam in the remote case, each USDT in circulation is backed by “hot crypto air.” All USDT holders would have been victims of the greatest crypto rugpull ever.
The Question is – Will crypto and DeFi die?
Without a doubt, the first few casualties will be DeFi protocols across the board that, in one way or another, accept USDT as collateral.
Upon the realization that USDT holders have been rug pulled, the resulting FUD will see users rush for the exit, causing USDT/USD rate to plunge and the DeFi protocol’s valuation to sink. Worse, there will be nothing users can do, at least in the beginning. The inevitability will happen, Ethereum will choke, and the resulting congestion makes it senseless to salvage whatever token you had.
So, yes, DeFi within the first few days—even hours, will concuss, fall into a coma, but not die.
Instead, the outflow from USDT to alternatives like USDC might just stymie losses and help DeFi find its footing.
In the meantime, USDT valuation will drop while alternatives like DAI, USDC, PAX, BUSD, will benefit from the multi-billion redistribution.
However, there is one beautiful thing that won’t be affected.
Ethereum, BSC, Algorand, Tron, and all other individual smart contracting platforms would continue to operate as usual. If anything, in this hypothetical apocalyptic USDT-triggered disruptive crypto dump, their valuation—especially Bitcoin—a store-of-value—would likely expand.
Their respective value proposition wouldn’t be affected.
Instead, the crypto development team would realize the Achilles’ heel of pegging asset’s valuation with fiat and opt to build a solution that’s algorithmically adjusted, more like DAI. This new option wouldn’t require banks; instead, it would depend on the system’s automated recalibration for tempering and keeping the market afloat.
So, yes, even if USDT goes bust, the crypto and #DeFi market will find a way to survive in the long term. Losses will be short-term, helping build resilience. The biggest concern here is that the short-term losses would be tremendous for anyone invested in Tether. There is no denying that although some may get out in time, there is going to be tens of billions of dollars lost.