Stablecoins are cryptocurrencies designed to be pegged to a normal currency and maintain that value independent of any movement of the market. They can achieve this by using several methods, but one of the most used is 1:1 backing with the original currency. Tether, the most famous and used stablecoin in the cryptocurrency market claims to do this: for every USDT (USD Tether) there should be a dollar in an account to be redeemable at any time. This makes the price hold onto that value.
But some days from now, the Tether price has been fluctuating and has been consistently 2 or 3 percent down regarding its pegged currency, the US Dollar. this has also created a problem for most exchanges that list or support Tether, because this imbalance has caused a premium in the price of bitcoin of 3% up when compared to other, non-tether listing exchanges.
The problem seems to be caused by a lack of trust that has triggered a selloff amidst rumors that Tether banking partners and services are not performing well enough. The Noble Bank in Puerto Rico, once a bank that served Tether, is now in the brink of bankruptcy and finding new investors to stay afloat. This combined with a supposed lack of liquidity for changing big amounts of Tether could be causing this unbalance.
Also, the influence of new, more advanced and better regulated stable instruments could be influencing traders to abandon Tether in search of other solutions. Stablecoins surged as a means for traders to maintain their earnings in a volatile market without needing to cash out every time, and Tether pioneered the idea.
But now there is a stablecoin fever and virtually every exchange out there is launching its own stablecoin, there is little point of maintaining a poorly audited stablecoin instead of flocking to solutions like the Gemini dollars, the new stablecoin that has been approved by New York regulators. Or even the new Universal dollar backed up by the popular exchange Circle.
Also, they have not had a full audit since almost a year ago, when they terminated their relationship with their auditor due to “excruciating” methods to audit a “simple” balance sheet. This means that the supposed transparency of the stablecoin is just a word, and really the vaults are a black box whose contents are unknown to everyone but them. This is starting to look really bad and the market is reflecting it also.
Update: at the time of the writing, Tether’s price fell as low as $0.94, reinforcing the thoughts and ideas exposed in this article.