It is Dangerous to Know the only Features of USDT (Tether)! Unexpected Pitfalls of Tether

It is Dangerous to Know the only Features of USDT (Tether)! Unexpected Pitfalls of Tether

The characteristic of the tether is that the value is linked to the US dollar, and there is no big price fluctuation like bitcoin. If you look only at this, you will feel as a stable currency among crypto assets, but you should also know the other side of the tether.
In particular, there have been major incidents such as tethering allegations that have undermined investor confidence and have not been resolved. The tether has already become a key currency as a stable coin. The trend will give a big indication on the development of stable coins in the future.
This time, I will investigate the negative part of these tethers and consider the future of stable coins.

USDT (Tether / Tether) Feature Review


The USDT (hereinafter tether) is a stable coin linked to the value of the US dollar. For example, the current value of the US dollar is 1 dollar = 109 yen, so 1USDT is adjusted to be 109 yen. To be precise, it is difficult to perfectly match the value of the US dollar, but now the price is stable to be around 10 yen.
It is not uncommon for key cryptographic assets such as Bitcoin to have a price fluctuation of several tens of thousands of yen a day. On the other hand, because the price of the tether is on a US dollar basis, major movements are unlikely to occur in the short term.
Currently, many exchanges can trade using tethers (not on domestic exchanges), but for example, buying bitcoins using tethers is relatively stable without being fooled by unnecessary price fluctuation risk It is possible to set up a budget and invest.
So far, it has been a brief review of tethers. Knowing these characteristics can be used to advantage in future investment in cryptographic assets.
However, it should be remembered that although the tether is stable in its currency price, there are also many unstable factors such as the actual impact on the market. We will tell in detail below about the points to be aware of when dealing with tethers.

Why not just know the characteristics of USDT (Tether / Tether)

Because the tether is linked to the value of a specific currency, such as legal currency (peg system), it differs in characteristics from common cryptographic assets such as bitcoin and ethereal. Because of the differences in characteristics, the market for cryptographic assets is also influential, and it is true that there are various concerns.
Here is a detailed introduction to the danger part of the tether.

Danger (1): Centralization system

Cryptographic assets are fundamentally decentralized, meaning that no particular company or entity is involved in managing or issuing currency. It is a mechanism that distributes transaction information among networks participating in a blockchain and issues currency automatically.
One tether is a company called Tether Limited, which holds the currency control and issuance rights. It means that there is a centralized feature.
If you want to use the tether, you will first deposit the US dollar in a Tether Limited designated account and a USDT will be issued according to the amount. The deposited US dollars will be deposited into the account and used to convert the tethers to US dollars.
The fact that a particular company has control over the currency will expose the counterparty risk. Counterparty risk means that the funds deposited cannot be collected due to bankruptcy or bankruptcy of the operating company.
If the business environment of Tether Limited deteriorates and goes into bankruptcy, the current value of USDT will be zero. This is because the company that secures the value of the tether is lost.
By using a tether, it can be conveniently used on exchanges that cannot use legal currency such as Japanese yen or US dollar. On the other hand, since there is also a risk unique to a centralized system, careful handling is necessary.

Danger (2): Tether suspicion

The total amount of USD deposited in the tether is always the same as the total amount of USDT distributed to the market. By having the same amount and amount of money, the tether has a mechanism to be linked to the value of the US dollar.
On the other hand, I told you that Tether Limited is in control of the USDT. In other words, users do not know how Tether Limited controls the USD and USDT held by Tether Limited. Under this opaque system, tether suspicions arose in the past.
Tether Limited must have the same amount of USD as the USDT being distributed, but an audit corporation will launch an investigation because it is not prepared. However, Tether Limited rejected the investigation in the form of closing its partnership with the audit corporation.
There is also a suspicion that BTC prices are being controlled by collaborating with Tether Limited, such as unnatural bitcoin price increases that occur at the partner exchange, Bitfinex.
Most of the tether allegations are still stuck without showing a clear solution. The centralization system and the still unclear business environment are also exacerbating this problem.

Danger (3): The impact on BTC prices is large

In April 2019, the Attorney General of New York filed a case in which the Attorney General of New York sued the Tether Limited and Bitfinex. At that time, Tether Limited received a legal currency of $ 8.5 million (approximately ¥ 93 billion) from users and issued USDT, but is suspected of fraudulent use as a means to fill in the losses rather than deposit.
The price of Bitcoin recorded a sudden drop of 50,000 yen in an instant from 610,000 yen to 560,000 yen only in response to this incident. Because the bitcoin trade using the tether exceeds 75% in the world share (as of May 9, 2019), news such as Tether Limited will be greatly affected.

Stable coin to solve USDT (Tether / Tether) issue


As of May 2019, the tether is popular as a stable coin’s key currency. Now that many exchanges have adopted USDT as a currency pair, it can be said to be the most convenient cryptographic asset to buy a particular stock.
On the other hand, it is true that investors have become distrusted about suspicions of tethers. We cannot expect the future unless there is a clear announcement from Tether Limited, Bitfinex, etc. to prove soundness.
Therefore, Paxos (PAX) is one of the stable coins that is currently attracting attention. The background behind the development of Paxos is just the suspicion of a tether, and in this currency the concept is highly transparent currency management and management that investors can rely on.
Paxos, like the tether, is a peg currency linked to the value of the US dollar, but has permission to set up a trust company and has the same authority as a bank with regard to the storage of financial assets. Also, it has been approved under the New York State Financial Services Agency’s strict oversight and regulations, and is likely to be a stable coin that is reliable for Tether Limited.

Summary

Although the tether is now dealt with by many exchanges, it is considered that the future has a danger signal. Two years have passed since the birth of the tether suspicion, but Tether Limited has not shown a clear direction, and investor confidence has gradually been lost.
This time, I introduced Paxos as a stable coin that is likely to rise instead of a tether. Meanwhile, in Japan, major financial institutions such as Mitsubishi UFJ and Mizuho Bank are aiming to issue stable coins, and Facebook is also eager to develop its own currency.
Since various stable coins should appear from now on, let’s hold down the feature now. And based on the lessons of the tether suspicion, be sure to handle only currencies that are valuable to you.