The stablecoin reserves are not cash which are held at a bank. Most stablecoin companies buy short term bonds to make money off all that money. Hence why tether had a great year last year.
These treasuries are then held in a trust. I think with USDC it was with Goldman Sachs. Treasuries are very safe since the government won’t default when they can just print the money out of thin air. Hence it’s safer than keeping in a bank.
Topic: How stable is USDT in the banking crisis of 2023? (Read 182 times)
It is true that USDT is currently the best stablecoin but there is a lot of uncertainty around it as everyone knows. So it is better to diversify.
There was this news yesterday:
Tether is buying bitcoin with a portion of its net profits to support the USDT stablecoin
https://www.cnbc.com/2023/05/17/tether-buys-222-million-worth-of-bitcoin-to-back-its-usdt-stablecoin.html
This means that they feel the danger, so they diversify their reserves as a kind of guarantee and to gain the confidence of investors, I think.
There was this news yesterday:
Tether is buying bitcoin with a portion of its net profits to support the USDT stablecoin
https://www.cnbc.com/2023/05/17/tether-buys-222-million-worth-of-bitcoin-to-back-its-usdt-stablecoin.html
This means that they feel the danger, so they diversify their reserves as a kind of guarantee and to gain the confidence of investors, I think.
USDT can survive negative market trends but if it's inflation I'm sure we won't be able to make usdt can make it a repository of money for currency inflation. because the bank crisis and usdt should be intertwined he is fiat too even though it is crypto. I prefer to keep gold if it is meant to fight a banking crisis.
USDT that can survive bad market trends is a natural thing for him because USDT is a stable coin that is in the crypto space so he is not so affected by bad market conditions. But if everything has to be linked to inflation, of course each currency will have its own impact on this. It's just that USDT is a little more helpful because it is in a greater scope, namely cryptocurrency, even though its value is the same as fiat. And for those of you who like to save gold, I think it depends on each other's trust in saving assets and in saving the value of existing assets. A stable coin does not exist. At least for all eternity.
They use a algorithm their creators declared safe.
All stable currencies that derive their value from the dollar are currencies that cannot be trusted to a certain extent in the field of cryptocurrencies. Those who know history can confirm how fixed currencies linked to the dollar can easily collapse, especially those that we do not have confirmation of the size of their dollar reserves. There is a clear interest in the dollar in its association with some of the cryptocurrencies, which is what makes it supervised by the authorities, who will most likely have this area of interest. They use a algorithm their creators declared safe.
In my opinion all comes down to the liquidity Tether has to fullfil it's obligations for their holders and clients. It is not only being fully backed but also the assets Tether is backed on.
For example, if Tether is fully backed in USD cash or precious metals, there should not be a problem for them in an incoming banking crisis. On the other hand, if the coin is backed on less liquidy assets like: properties, debt or other commodities then they may expect to have problems if a huge amont of clients run for their money and they cannot keep up the pace to sell their backing.
In the end, I think USDT will face difficulties because the plans the USA government has to push forward their CBDC nationwide or worldwide even.
For example, if Tether is fully backed in USD cash or precious metals, there should not be a problem for them in an incoming banking crisis. On the other hand, if the coin is backed on less liquidy assets like: properties, debt or other commodities then they may expect to have problems if a huge amont of clients run for their money and they cannot keep up the pace to sell their backing.
In the end, I think USDT will face difficulties because the plans the USA government has to push forward their CBDC nationwide or worldwide even.
A stable coin does not exist. At least for all eternity.
They use a algorithm their creators declared safe.
They use a algorithm their creators declared safe.
You're beholden to the assets of whatever these stablecoin issuers have, so in the event of a banking collapse, who's to say the cash equivalents/assets that these stablecoin issuers own don't collapse or lose value to a degree that's lesser than the total liabilities they have? Then they become collaterally damaged in the banking collapses, and stablecoin holders are left with a bunch of useless tokens. In the best case scenario, those tokens are worth proportional to the value of assets left relative to the total liabilities (and that's only if there's still confidence left in the system).
USDT or any other stablecoin shouldn't be viewed as immune to the same type of collapse the banks experience. Read the assets breakdown of these stablecoin issuers -- they don't hold reserves entirely in liquid cash or hard assets immune to fluctuation.
USDT or any other stablecoin shouldn't be viewed as immune to the same type of collapse the banks experience. Read the assets breakdown of these stablecoin issuers -- they don't hold reserves entirely in liquid cash or hard assets immune to fluctuation.
As they are pegged to the value of USD, we can't truly be sure of its future.
Also, do remember that this stablecoin is centralized, so don't forget that whatever may happen to the company behind,
can also be greatly influenced by what may happen to it. So one should also be on the lookout of the plans of the USDT team.
USDT can survive negative market trends but if it's inflation I'm sure we won't be able to make usdt can make it a repository of money for currency inflation. because the bank crisis and usdt should be intertwined he is fiat too even though it is crypto. I prefer to keep gold if it is meant to fight a banking crisis.
You're beholden to the assets of whatever these stablecoin issuers have, so in the event of a banking collapse, who's to say the cash equivalents/assets that these stablecoin issuers own don't collapse or lose value to a degree that's lesser than the total liabilities they have? Then they become collaterally damaged in the banking collapses, and stablecoin holders are left with a bunch of useless tokens. In the best case scenario, those tokens are worth proportional to the value of assets left relative to the total liabilities (and that's only if there's still confidence left in the system).
USDT or any other stablecoin shouldn't be viewed as immune to the same type of collapse the banks experience. Read the assets breakdown of these stablecoin issuers -- they don't hold reserves entirely in liquid cash or hard assets immune to fluctuation.
USDT or any other stablecoin shouldn't be viewed as immune to the same type of collapse the banks experience. Read the assets breakdown of these stablecoin issuers -- they don't hold reserves entirely in liquid cash or hard assets immune to fluctuation.
I wrote this article some time ago, but I want to know your opinion about this matter now. All the info is true to the end of April.
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---
Stablecoins are an excellent tool for any trader, because it is very convenient to transfer a deposit into them, thus fixing profits, and expectations of new bottoms in the price of altcoins or bitcoin. But as you correctly described, stablecoins are not as reliable as they seem. We know that the United States prints dollars not backed by gold, the same is true with stablecoins - no one can say for sure that they are backed by dollars. But we have no other alternative. It is better not to keep a deposit in them, but to use them only as a transit for transactions.
Stable-coins are possibly one of the biggest factors for some of the huge increases of value in the whole crypto market.
Some coins are allegedly (!) fully backed, some aren't. Which means it is possible that there is a massive liquidity bubble, that could burst because it is actually created out of thin air.
If this is indeed the case, then stable-coins buying Bitcoin or other crypto to back up their issued coins is a crazy, almost ponzi-like move. https://bitcointalksearch.org/topic/2023-05-17-cnbc-tether-buys-bitcoin-with-a-portion-of-its-net-profit-to-5453119
Ofc, it could be the case that indeed these stable coins are fully backed by liquid assets, then not much to worry about.
Some coins are allegedly (!) fully backed, some aren't. Which means it is possible that there is a massive liquidity bubble, that could burst because it is actually created out of thin air.
If this is indeed the case, then stable-coins buying Bitcoin or other crypto to back up their issued coins is a crazy, almost ponzi-like move. https://bitcointalksearch.org/topic/2023-05-17-cnbc-tether-buys-bitcoin-with-a-portion-of-its-net-profit-to-5453119
Ofc, it could be the case that indeed these stable coins are fully backed by liquid assets, then not much to worry about.
In my case there is a question not about holding USDT,
I use them for my daily operations & general transactions, although I have some reserves to cover my few months of operations.
I found like several different opinions on topic of usdt-stability regarded to potential upcoming banking crysis, and me personaly I have complete mess atm: is there any real ADDITIONAL risks for me as holder/user? I mean behind USUAL risks of owning crypto currencies.
There are many school of thought to this very information, many people has different reasons for their thoughts, people do advice on not holding Crypto-currency completely also so advice to hold it. Well I would say stable coins are part of the crypto-currency space, it's that crypto you can holding when you aren't sure if which coin to buy, it's lole the decentralized form of holding a fiat because it's actually doesn't have its own value but has the value of the US dollars.I use them for my daily operations & general transactions, although I have some reserves to cover my few months of operations.
I found like several different opinions on topic of usdt-stability regarded to potential upcoming banking crysis, and me personaly I have complete mess atm: is there any real ADDITIONAL risks for me as holder/user? I mean behind USUAL risks of owning crypto currencies.
Regardless of the fact that stable coin should be stable we have seen instances where some stable coin lost their values like USDC when then has the issue with silicon valley bank.
There is no room to be complacent in crypto-currency nothing is assured, for now I also have some USDT and it's proven to be a strong stable coin but I still keep my guard and instincts up Incase of any drama.
The truth is that all stablecoins have some significant risk for holders.
Even if they have reserves in banks, the bank may just go bankrupt (as we have seen with usdc)
There no simple solution, and as always the best is to diversify.
But diversify only among stablecoins, but to diversify alon different asset classes.
Go to metals, gold, etfs, stocks, bonds, crypto, etc. All asset classes carry a different risk, and being expose to many different risks is way safer than to a few ones.
Even if they have reserves in banks, the bank may just go bankrupt (as we have seen with usdc)
There no simple solution, and as always the best is to diversify.
But diversify only among stablecoins, but to diversify alon different asset classes.
Go to metals, gold, etfs, stocks, bonds, crypto, etc. All asset classes carry a different risk, and being expose to many different risks is way safer than to a few ones.
Diversification is indeed a proven strategy overtime to manage risk in any kind of investment. By diversification of assets across various classes means spreading out the risk, which can certainly help to mitigate the effects of and unforeseen situation that may otherwise substantially reduce or diminish the overall value of your invested funds.
A long article that did not address any details about Luna or the BUSD, which had a clear impact on the market, whether it had an impact on the price or on legal regulations more than the impact of USDC, which could be a more reliable currency than USDT even with all that happened.
There is also an impact on the viability of decentralized stablecoins such as Dai, which will be of dubious value due to what happened with USDC and Luna.
So, the collapse of banks means that both central and decentralized stablecoins are not a safe haven, and therefore it is better to reduce your ownership of these currencies and diversify your investments in gold, bitcoin, cash for foreign currencies, dollar, metals and real estate.
There is also an impact on the viability of decentralized stablecoins such as Dai, which will be of dubious value due to what happened with USDC and Luna.
So, the collapse of banks means that both central and decentralized stablecoins are not a safe haven, and therefore it is better to reduce your ownership of these currencies and diversify your investments in gold, bitcoin, cash for foreign currencies, dollar, metals and real estate.
In my case there is a question not about holding USDT,
I use them for my daily operations & general transactions, although I have some reserves to cover my few months of operations.
I found like several different opinions on topic of usdt-stability regarded to potential upcoming banking crysis, and me personaly I have complete mess atm: is there any real ADDITIONAL risks for me as holder/user? I mean behind USUAL risks of owning crypto currencies.
I use them for my daily operations & general transactions, although I have some reserves to cover my few months of operations.
I found like several different opinions on topic of usdt-stability regarded to potential upcoming banking crysis, and me personaly I have complete mess atm: is there any real ADDITIONAL risks for me as holder/user? I mean behind USUAL risks of owning crypto currencies.
Results
The analysis implies that while USDT has become a refuge for traders amidst the recent banking issues, it's crucial to exercise caution due to Tether's historical encounters with fear, uncertainty, doubt (FUD), and redemption challenges. The market continues to show a strong demand for stablecoins and highly values their potential. The efficiency and robustness of stablecoin hedging strategies have also been proven, suggesting that they can swiftly regain their pegs when facing hurdles. However, the enduring resilience of Tether and other stablecoins is yet to be determined, and additional stress tests might be required for evaluating their future stability.
The analysis implies that while USDT has become a refuge for traders amidst the recent banking issues, it's crucial to exercise caution due to Tether's historical encounters with fear, uncertainty, doubt (FUD), and redemption challenges. The market continues to show a strong demand for stablecoins and highly values their potential. The efficiency and robustness of stablecoin hedging strategies have also been proven, suggesting that they can swiftly regain their pegs when facing hurdles. However, the enduring resilience of Tether and other stablecoins is yet to be determined, and additional stress tests might be required for evaluating their future stability.
The truth is that all stablecoins have some significant risk for holders.
Even if they have reserves in banks, the bank may just go bankrupt (as we have seen with usdc)
There no simple solution, and as always the best is to diversify.
But diversify only among stablecoins, but to diversify alon different asset classes.
Go to metals, gold, etfs, stocks, bonds, crypto, etc. All asset classes carry a different risk, and being expose to many different risks is way safer than to a few ones.
The truth is that all stablecoins have some significant risk for holders.
Even if they have reserves in banks, the bank may just go bankrupt (as we have seen with usdc)
Even if they have reserves in banks, the bank may just go bankrupt (as we have seen with usdc)
Theoretically, you're right, but in practice, the FDIC and the Fed already said that no customer will be hurt by the banking crisis. no matter how big their deposit was (even above $250k - standard FDIC insurance). even if bank was not "too big to fail'. As far as I know, USDC recovered lost funds.
Go to metals, gold, etfs, stocks, bonds, crypto, etc. All asset classes carry a different risk, and being expose to many different risks is way safer than to a few ones.
+1. Totally agree.
Well, ain't we in the heart of a financial potboiler? Banks toppling like a house of cards, stablecoins teetering, and Tether? It's doing the moonwalk in this turmoil, like MJ on a dance floor! The banking debacle of '23, coupled with Tether's rise, is like a wild cross between "Money Heist" and "The Big Short." The winner? None other than our pal, USDT!
Irony's the word, folks. Amid this maelstrom, the crypto often slammed for its transparency hiccups turns out to be the belle of the ball. Is it the black swan turning gold? But let's not forget: even golden geese have their off days. Tether's shown grit in this storm, no doubt. But let's not forget the old adage, "Past performance is no guarantee of future results." We need a magnifying glass on Tether's operations, its so-called transparency, and financial risks before we start throwing confetti!
Irony's the word, folks. Amid this maelstrom, the crypto often slammed for its transparency hiccups turns out to be the belle of the ball. Is it the black swan turning gold? But let's not forget: even golden geese have their off days. Tether's shown grit in this storm, no doubt. But let's not forget the old adage, "Past performance is no guarantee of future results." We need a magnifying glass on Tether's operations, its so-called transparency, and financial risks before we start throwing confetti!
Results
The analysis implies that while USDT has become a refuge for traders amidst the recent banking issues, it's crucial to exercise caution due to Tether's historical encounters with fear, uncertainty, doubt (FUD), and redemption challenges. The market continues to show a strong demand for stablecoins and highly values their potential. The efficiency and robustness of stablecoin hedging strategies have also been proven, suggesting that they can swiftly regain their pegs when facing hurdles. However, the enduring resilience of Tether and other stablecoins is yet to be determined, and additional stress tests might be required for evaluating their future stability.
The analysis implies that while USDT has become a refuge for traders amidst the recent banking issues, it's crucial to exercise caution due to Tether's historical encounters with fear, uncertainty, doubt (FUD), and redemption challenges. The market continues to show a strong demand for stablecoins and highly values their potential. The efficiency and robustness of stablecoin hedging strategies have also been proven, suggesting that they can swiftly regain their pegs when facing hurdles. However, the enduring resilience of Tether and other stablecoins is yet to be determined, and additional stress tests might be required for evaluating their future stability.
The truth is that all stablecoins have some significant risk for holders.
Even if they have reserves in banks, the bank may just go bankrupt (as we have seen with usdc)
There no simple solution, and as always the best is to diversify.
But diversify only among stablecoins, but to diversify alon different asset classes.
Go to metals, gold, etfs, stocks, bonds, crypto, etc. All asset classes carry a different risk, and being expose to many different risks is way safer than to a few ones.
I wrote this article some time ago, but I want to know your opinion about this matter now. All the info is true to the end of April.
Are we facing yet another global banking crisis in 2023? Haven't we endured enough turmoil in recent years? Did the actions and decisions of individuals ultimately lead us into this recession? It is crucial that we uncover the underlying causes and determine who emerges as the victor in this situation. To gain a comprehensive understanding of the current state of affairs, let's delve into the chain of events that have precipitated the impending economic crisis.
Banking crisis of 2023
In a brief span of time this year, three banks that previously served as deposit collectors for cryptocurrency companies—Silicon Valley Bank (SVB), Signature Bank, and Silvergate Capital—collapsed, shedding light on the potential instability of stablecoins. Circle, a fintech company, made a startling revelation regarding its substantial $3.3 billion exposure to SVB. Consequently, the price of its USDC token experienced a momentary dip, plummeting to 88 cents instead of its customary one-dollar value. However, thanks to the diligent efforts of US regulators in safeguarding deposits within Silicon Valley, and Circle's commitment to extending financial support, the token managed to regain its initial value.
The Federal Reserve, the agency in charge of steering the U.S. economy, has recently published a report examining the likely repercussions of the current banking sector difficulties. This report suggests that the economy might enter a recession later in the year due to the banking crisis. The Federal Reserve's team forecasts a moderate recession in the later part of this year, with economic recovery anticipated over the subsequent two years.
The report also discloses that the Federal Reserve is predicting a mere 0.4% growth in the Gross Domestic Product (GDP) for 2023, implying an economic slowdown. This prediction follows the Federal Reserve's decision to raise the benchmark borrowing rate by 0.25 percentage points, leading to a target range of 4.75%-5%, the highest level since 2007. This hike in rate came shortly after the collapse of Silicon Valley Bank, one of the largest banks in the U.S., due to a bank run. The fallout from the failure of this and other banks necessitated the establishment of emergency lending mechanisms to ensure the continuity of banking operations.
The report suggests that inflation figures have generally been in alignment with the Federal Reserve's objectives. Nonetheless, the broader economic scenario remains unpredictable, especially considering the banking sector's troubles. In response to these difficulties, Federal Reserve officials have inaugurated a new borrowing facility for banks and relaxed terms for emergency loans at the discount window, intending to assist the industry in weathering its problems. Despite these measures, officials anticipate that lending will become more restrictive and credit conditions will worsen, hinting at additional economic challenges ahead.
A number of decision-makers pondered whether it would be better to maintain the existing rates while they monitored the development of the crisis. However, they unanimously agreed to further increase rates due to heightened inflation, robust recent economic data, and their dedication to reduce inflation to the Committee's long-term target of 2%.
In simpler terms, it's not looking good for us. Yet, amid all this turmoil, guess what's flourishing? If your guess was USDT, you've hit the nail on the head.
Stability of Tether(USDT) in 2023
In recent weeks, the contentious stablecoin Tether (USDT) has risen as the preferred choice for traders seeking a safe harbor amidst the United States' banking disturbances. The banking turmoil in America, notably the demise of Silvergate and Silicon Valley Bank, has exposed that heavily regulated, dollar-backed stablecoins like USDC may not be as steady as crypto proponents propose. The USD Coin (USDC) fell under 90 cents, and decentralized stablecoins frax and dai strayed from their targeted dollar value. On the other hand, Tether's more contentious stablecoin, USDT, which doesn't depend on dollars in American banks, has maintained its proximity to its dollar peg over the weekend, even trading at a surplus. This could be attributed to its minimal exposure to the US banking system, making it one of the most secure stablecoins to switch to at present. Nevertheless, both stablecoins saw their prices slip below the dollar value. This situation has highlighted that stablecoins, even those anchored to fiat currencies, are just as dependent on banks and government actions as their traditional fiat counterparts.
Tether's announcement of a $700 million profit in Q1 and its exceeding of the $1 billion surplus reserve mark is noteworthy in the stablecoin market. Stablecoins, designed to safeguard against price fluctuations, are a more appealing investment choice for novice investors. Tether's expansion is a testament to the growing adoption of stablecoins as a safer investment option. Yet, Tether’s opaque financial practices have been a consistent point of contention, with the firm failing to disclose the identity or location of the companies from which it has acquired debt. The firm has reallocated its holdings to more trustworthy U.S. Treasurys, but the lack of transparency could still be alarming for certain investors. The surge in Tether’s utilization following the collapse of Silicon Valley Bank underscores the crucial role stablecoins play in managing risk and upholding the stability of the crypto market.
Tether's resilience amidst the crisis can be attributed primarily to its lack of direct involvement with SVB, where it simply did not have any deposits. Other stablecoins also experienced indirect exposure and lost their peg because they were largely collateralized by USDC. However, it's still important to proceed with caution, as Tether has previously grappled with fear, uncertainty, and doubt (FUD), as well as redemption challenges. Further stress tests would reveal its long-term robustness.
In order to understand the stability of USDT, it would be beneficial to draw a comparison with USDC. Let's delve into some of the statistics:
x axis - date, y axis - price
Graph of the USDT’s price changes
https://i.ibb.co/GQNwStP/Screen-Shot-2023-04-24-at-19-06-28.png
Graph of the USDC’s price changes
https://i.ibb.co/BjLjyjt/Screen-Shot-2023-04-24-at-19-06-58.png
Also, let’s look at the numerical data:
https://i.ibb.co/SB9Xmkf/Screen-Shot-2023-05-17-at-10-15-24.png
https://i.ibb.co/s5Bp2kV/Screen-Shot-2023-05-17-at-10-14-06.png
As it currently stands, USDT is outperforming. But will it maintain this position over time?
USDC and USDT can be seen as two facets of the same entity, both being centralized stablecoins with significant roles in the crypto economy. Their primary function is as a trading instrument and they stand at the heart of a majority of DeFi products and traditional cryptocurrency exchanges. However, following the collapse of the algorithmic stablecoin TerraLUNA, regulatory tightening, and banking disasters, the central figures in the crypto sector have been revealed to be perilously overleveraged.
Cryptocurrencies cannot rely on banks and maintain stability, and the handful of banks that dare to engage with Web3 face scrutiny and advice against servicing the crypto industry. If any cryptocurrency, beyond Bitcoin, aims to provide users the option to safeguard against dollar instability, it must largely disengage from fiat currency. Already in existence are algorithmic stablecoins and crypto-backed stablecoins that use only Bitcoin and/or Ethereum to mint and redeem stablecoins on demand for any currency. If the crypto ecosystem aims to become resistant to banking crises, then it might be necessary for crypto companies to begin establishing liquidity with inherent solutions.
Results
The analysis implies that while USDT has become a refuge for traders amidst the recent banking issues, it's crucial to exercise caution due to Tether's historical encounters with fear, uncertainty, doubt (FUD), and redemption challenges. The market continues to show a strong demand for stablecoins and highly values their potential. The efficiency and robustness of stablecoin hedging strategies have also been proven, suggesting that they can swiftly regain their pegs when facing hurdles. However, the enduring resilience of Tether and other stablecoins is yet to be determined, and additional stress tests might be required for evaluating their future stability.
Are we facing yet another global banking crisis in 2023? Haven't we endured enough turmoil in recent years? Did the actions and decisions of individuals ultimately lead us into this recession? It is crucial that we uncover the underlying causes and determine who emerges as the victor in this situation. To gain a comprehensive understanding of the current state of affairs, let's delve into the chain of events that have precipitated the impending economic crisis.
Banking crisis of 2023
In a brief span of time this year, three banks that previously served as deposit collectors for cryptocurrency companies—Silicon Valley Bank (SVB), Signature Bank, and Silvergate Capital—collapsed, shedding light on the potential instability of stablecoins. Circle, a fintech company, made a startling revelation regarding its substantial $3.3 billion exposure to SVB. Consequently, the price of its USDC token experienced a momentary dip, plummeting to 88 cents instead of its customary one-dollar value. However, thanks to the diligent efforts of US regulators in safeguarding deposits within Silicon Valley, and Circle's commitment to extending financial support, the token managed to regain its initial value.
The Federal Reserve, the agency in charge of steering the U.S. economy, has recently published a report examining the likely repercussions of the current banking sector difficulties. This report suggests that the economy might enter a recession later in the year due to the banking crisis. The Federal Reserve's team forecasts a moderate recession in the later part of this year, with economic recovery anticipated over the subsequent two years.
The report also discloses that the Federal Reserve is predicting a mere 0.4% growth in the Gross Domestic Product (GDP) for 2023, implying an economic slowdown. This prediction follows the Federal Reserve's decision to raise the benchmark borrowing rate by 0.25 percentage points, leading to a target range of 4.75%-5%, the highest level since 2007. This hike in rate came shortly after the collapse of Silicon Valley Bank, one of the largest banks in the U.S., due to a bank run. The fallout from the failure of this and other banks necessitated the establishment of emergency lending mechanisms to ensure the continuity of banking operations.
The report suggests that inflation figures have generally been in alignment with the Federal Reserve's objectives. Nonetheless, the broader economic scenario remains unpredictable, especially considering the banking sector's troubles. In response to these difficulties, Federal Reserve officials have inaugurated a new borrowing facility for banks and relaxed terms for emergency loans at the discount window, intending to assist the industry in weathering its problems. Despite these measures, officials anticipate that lending will become more restrictive and credit conditions will worsen, hinting at additional economic challenges ahead.
A number of decision-makers pondered whether it would be better to maintain the existing rates while they monitored the development of the crisis. However, they unanimously agreed to further increase rates due to heightened inflation, robust recent economic data, and their dedication to reduce inflation to the Committee's long-term target of 2%.
In simpler terms, it's not looking good for us. Yet, amid all this turmoil, guess what's flourishing? If your guess was USDT, you've hit the nail on the head.
Stability of Tether(USDT) in 2023
In recent weeks, the contentious stablecoin Tether (USDT) has risen as the preferred choice for traders seeking a safe harbor amidst the United States' banking disturbances. The banking turmoil in America, notably the demise of Silvergate and Silicon Valley Bank, has exposed that heavily regulated, dollar-backed stablecoins like USDC may not be as steady as crypto proponents propose. The USD Coin (USDC) fell under 90 cents, and decentralized stablecoins frax and dai strayed from their targeted dollar value. On the other hand, Tether's more contentious stablecoin, USDT, which doesn't depend on dollars in American banks, has maintained its proximity to its dollar peg over the weekend, even trading at a surplus. This could be attributed to its minimal exposure to the US banking system, making it one of the most secure stablecoins to switch to at present. Nevertheless, both stablecoins saw their prices slip below the dollar value. This situation has highlighted that stablecoins, even those anchored to fiat currencies, are just as dependent on banks and government actions as their traditional fiat counterparts.
Tether's announcement of a $700 million profit in Q1 and its exceeding of the $1 billion surplus reserve mark is noteworthy in the stablecoin market. Stablecoins, designed to safeguard against price fluctuations, are a more appealing investment choice for novice investors. Tether's expansion is a testament to the growing adoption of stablecoins as a safer investment option. Yet, Tether’s opaque financial practices have been a consistent point of contention, with the firm failing to disclose the identity or location of the companies from which it has acquired debt. The firm has reallocated its holdings to more trustworthy U.S. Treasurys, but the lack of transparency could still be alarming for certain investors. The surge in Tether’s utilization following the collapse of Silicon Valley Bank underscores the crucial role stablecoins play in managing risk and upholding the stability of the crypto market.
Tether's resilience amidst the crisis can be attributed primarily to its lack of direct involvement with SVB, where it simply did not have any deposits. Other stablecoins also experienced indirect exposure and lost their peg because they were largely collateralized by USDC. However, it's still important to proceed with caution, as Tether has previously grappled with fear, uncertainty, and doubt (FUD), as well as redemption challenges. Further stress tests would reveal its long-term robustness.
In order to understand the stability of USDT, it would be beneficial to draw a comparison with USDC. Let's delve into some of the statistics:
x axis - date, y axis - price
Graph of the USDT’s price changes
https://i.ibb.co/GQNwStP/Screen-Shot-2023-04-24-at-19-06-28.png
Graph of the USDC’s price changes
https://i.ibb.co/BjLjyjt/Screen-Shot-2023-04-24-at-19-06-58.png
Also, let’s look at the numerical data:
https://i.ibb.co/SB9Xmkf/Screen-Shot-2023-05-17-at-10-15-24.png
https://i.ibb.co/s5Bp2kV/Screen-Shot-2023-05-17-at-10-14-06.png
As it currently stands, USDT is outperforming. But will it maintain this position over time?
USDC and USDT can be seen as two facets of the same entity, both being centralized stablecoins with significant roles in the crypto economy. Their primary function is as a trading instrument and they stand at the heart of a majority of DeFi products and traditional cryptocurrency exchanges. However, following the collapse of the algorithmic stablecoin TerraLUNA, regulatory tightening, and banking disasters, the central figures in the crypto sector have been revealed to be perilously overleveraged.
Cryptocurrencies cannot rely on banks and maintain stability, and the handful of banks that dare to engage with Web3 face scrutiny and advice against servicing the crypto industry. If any cryptocurrency, beyond Bitcoin, aims to provide users the option to safeguard against dollar instability, it must largely disengage from fiat currency. Already in existence are algorithmic stablecoins and crypto-backed stablecoins that use only Bitcoin and/or Ethereum to mint and redeem stablecoins on demand for any currency. If the crypto ecosystem aims to become resistant to banking crises, then it might be necessary for crypto companies to begin establishing liquidity with inherent solutions.
Results
The analysis implies that while USDT has become a refuge for traders amidst the recent banking issues, it's crucial to exercise caution due to Tether's historical encounters with fear, uncertainty, doubt (FUD), and redemption challenges. The market continues to show a strong demand for stablecoins and highly values their potential. The efficiency and robustness of stablecoin hedging strategies have also been proven, suggesting that they can swiftly regain their pegs when facing hurdles. However, the enduring resilience of Tether and other stablecoins is yet to be determined, and additional stress tests might be required for evaluating their future stability.
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