USDT accepts "Doomsday Judgment", alarmist? Or is it true?

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1. The crisis of trust in the stablecoin USDT

USDT is the oldest stable currency, and it is also the most mainstream stable currency at present. Before introducing USDT, let's briefly introduce stablecoins. Stablecoin, as the name suggests, is a digital currency that is not affected by price fluctuations. Its biggest feature is that its price is stable, and it will not sometimes skyrocket and sometimes plummet like Bitcoin (the recent market, everyone knows). In order to solve the problem of excessive fluctuations in the price of digital currencies, the concept of "stable currency" has been proposed. "Stable currency" must be stable, which requires the support of some kind of alternative value of stable currency, such as: US dollar, gold and so on.

USDT is the stable currency anchored to the US dollar. Simply put, the price of 1 USDT is equal to 1 US dollar. USDT is issued by Tether Limited, the world's largest digital currency trading platform Bitfinex. Users reserve U.S. dollars in Tether's bank accounts, and Tether issues USD certificates with a price equal to one dollar, namely USDT. Tide claims 100% asset reserves, and users can exchange USDT back to U.S. dollars on its platform at a 1:1 ratio. The simple understanding is that how many USDTs are issued means how many U.S. dollar reserves Tide has.This rule looks good and makes people feel more at ease, but in fact it is equivalent to digging a "pit" for yourself, because once Ted Company does not have so many US dollar reserves, it will issue additional USDT, which is equivalent to "slapping yourself in the face" ", is dishonest behavior. If this kind of news spreads out, users will definitely sell a large number of them to avoid risks when they hear any troubles. At that time, the supply in the market will exceed demand, the price will fall, and the stable currency will no longer be stable. (After all, news pulling and smashing is a very common phenomenon in the currency circle)

In fact, USDT has indeed been "falling into the pit" in the past five years. From the time when USDT first appeared in 2014 to the present, in five years, all the doubts about USDT have been raised around USDT, but there is no USD reserve of corresponding value. And every time the news comes out, the result is directly reflected in the USDT price (price drop):

In November 2017, Tether was exposed to insufficient margin, and the USDT of users could not be redeemed. The USDT/USD ratio instantly fell from the equivalent value of 1 to around 0.9. A large number of investors exchanged their USDT for BTC or other mainstream currencies to avoid risk;

In October 2018, USDT encountered a crisis of trust, and the price plummeted. Many retail investors exchanged USDT for fiat or mainstream currencies. The short-term redemption of fiat currency caused the OTC exchange rate of most exchanges to drop by as much as 15%.

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2. Is the USDT hearing a "Doomsday Judgment" or an exaggeration?

In April 2019, USDT was sued. U.S. Attorney General Letitia James of the State of New York has sued Tether, its parent company iFinex Inc., and the Bitfinex exchange in court. In response to this case, the United States is scheduled to hold a hearing on July 29. At 9:30 p.m. on July 29th, Beijing time, the hearing was held as scheduled. Given the important status of USDT, this hearing can be said to be highly anticipated. Some media have previously exaggerated that this hearing is a "doomsday trial" for USDT, "USDT is about to be delisted"...

But what is the real situation? Let me talk about the conclusion first, the real situation is not so bad, let alone the consequence of "delisting".

Let's first take a look at the cause of this hearing:

In April 2019, New York state prosecutors sued Tether, the issuing company of USDT, its parent company iFinex Inc., and the Bitfinex exchange. New York prosecutors believe that Tether and Bitfinex are suspected of a number of major violations, including: operating without a license without a license from the New York State Department of Financial Services, non-disclosure of major financial issues, poor fund management, and opaque relationships between Bitfinex and Tether. Once the investigation is true, Tether and Bitfinex will not only face high fines, but may even be sentenced to stop operations. (To put it simply, the New York State prosecutor believes that your USDT is not compliant in my New York State. If the funding problem is serious, you will be fined or even cease operations)

However, in response to these issues, Tether made an explanation: "We have not had a single American user in the past two years, nor have we established any corporate entities in the United States. Their judges cannot make any judgments. It is more likely that this investigation will continue. Continue for three to five months... If the digital currency market is really dominated by the United States, it will be a disaster and destroy the entire digital currency system.” (The implication is that I do not have a compliance license from New York State , but I am not engaged in financial activities in New York State either!)

Moreover, Tether is not an American company, but a Canadian company. The most Americans can do is to prohibit Tether from engaging in related financial business in the United States, and to prohibit American users from using the services provided by Tether. But as far as the current situation is concerned, the main users of USDT are not the US trading platform, and the US trading platform is still the country with the lowest proportion of USDT usage. (Implicit meaning: so what if you are not engaged in related services in the United States, you are not our main service target!)

Giancarlo, the founder and CFO of USDT, also took a tougher attitude. In his original words: “The U.S. government is eyeing USDT only because USDT’s business is too big. They want to get a share of the benefits, but they have nothing to do with us. ...." (This reminds me of Facebook's stablecoin Libra, which was also hurriedly stopped by the United States and held a hearing. At that time, the analysis was that Facebook anchored a basket of currencies, not the US dollar. Worried about the impact on the hegemony of the US dollar, we mobilized all forces to stop it. However, the situation of Tether’s stablecoin USDT is obviously more difficult, because Tether itself is not a US company, and the main users of USDT are not Americans)

Therefore, for this "accusation", even if Tether and Bitfinex eventually lose the lawsuit, it will not have much impact on USDT. Because first of all, these two companies are not registered in New York, so the final judgment is at best to prohibit Tether and Bitfinex from conducting business in New York State; second, most of the USDT currently flowing into the market is not provided for US trading platforms, even if Tether is banned Doing business with Bitfinex in New York State will not have much impact on USDT. This lawsuit is actually not painful for USDT.

Regarding yesterday's hearing, the New York Supreme Court did not make a ruling in court, saying that it needs more time to think. The trial of this case will be extended for 90 days, and the next trial will be on October 27.

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3. Is USDT really reliable?

In the end, you may ask, is USDT really reliable? In fact, USDT has always had the problem of opaque auditing. Taking the previous "real hammer" revelations as an example, it was agreed that the equivalent of US dollars should be deposited in the bank, but the official also admitted that there is no such thing. Moreover, the interest relationship between Tether and the parent company "Bitfinex Trading Platform" is indeed worth pondering. We have reason to question whether most stablecoins are highly concentrated and secretly manipulated.

Moreover, coincidentally, on July 14, 2019, Tether had another "additional oolong". It was revealed that Tether issued 5 billion USDT at one time on TRON. 5 billion is not a small amount, which means that Tether needs to have 5 billion USD in reserves. However, the official came out and explained that they only wanted to release 50 million pieces, but they pressed the wrong decimal point, and the excess USDT would be destroyed in time. (Low-level mistakes like decimal points can be made, and it is not unreasonable for the market to reduce trust in Tether and USDT)

However, USDT is still the oldest stable currency after all, and it has a high degree of recognition in China. It is not realistic to let everyone stop using USDT in a short time. However, if USDT’s trust crisis breaks out again and again, then combined with the current emphasis on “stablecoins” in the industry (giant companies are doing stablecoins, trading platforms are doing stablecoins, and project parties are doing stablecoins), even today their The competitiveness is not yet comparable to USDT, but it is hard to say in the future.