Tether (USDT) is a typical representative of stable currencies. The stable currency database claims to stabilize prices by linking its own prices to stable assets such as the US dollar. Because of the promise of stabilizing the price, many people have called the stable currency the "Holy grail of cryptocurrency."
Despite praise, history tells us over and over again that link to currency may collapse and cause widespread disaster when they do so. For example:
Mexican peso crisis in 1994
Asian Financial Crisis in 1997
The Russian Financial Crisis in 1998
The Great Depression of Argentina
Here I’ll show you the weakness and risk of usdt while providing some real examples at the same time to answer the question of the title.
Tether (USDT) is an example of a stable currency backed by real-world collateral. It is owned and operated by Bitfinex, one of the world's largest cryptocurrency exchanges. USDT claims that tethers can be converted to US dollars in a 1:1 ratio, that means usd to usdt is 1:1.
Although this seems to be a good way to achieve price stability, there are some major weaknesses in this approach:
1. We need to believe that the issuer will act honestly and will not create unreasonable collateral to the digital assets it issues.
2. We need frequent professional audits to prove the existence of collateral because real-world assets are not visible on the blockchain.
3. Since the collateral is not transparent, it is difficult to stabilize the speculation and false rumors because they have not received enough support.
In addition , USDT is being accused by the cryptocurrency community for it is not supported by the U.S. dollar, and critics demand an independent audit to verify the integrity of the USDT. So far, the situation is not good.
The Impact of USDT Fraud on the Cryptocurrency Market
Many people think that USDT fraud will affect only a small part of the total cryptocurrency market. However, JPMorgan estimates that the ratio between the inflow of fiat currency and the market value is 1:50. Since the exchange of USDT to the US dollar is actually a legal currency inflow, every US dollar exchange rate used to purchase cryptocurrencies will increase the overall market value by US$50. If the fake USDT are issued, then the worthless USDT is used to artificially support an important part of the entire cryptocurrency market. Once the fraud has become clear, the market will thrive.
So now we have seen the lack of trust in the stable currency under the support of real-world assets. Such stable currency advocates that price stability is achieved by excessively mortgaged cryptocurrencies against issued tokens. However, they are more vulnerable to price shocks than their legal counterparts. If the collateral which is enough difficult to collapse, this is very likely in an unstable cryptocurrency market, and price stability will be crushed.
So you must be cautious if you want to buy tether, do not blindly trust stable gold coins to hold the correct amount of collateral. Tether (USDT) can not hold its price at $1 if the cryptocurrency market collapses?