Why Overdependence on One Stablecoin Is Risky

Editor's Note: This article comes fromGolden Finance, reprinted by Odaily with authorization.

Editor's Note: This article comes from

Golden Financebitcoin, reprinted by Odaily with authorization.

It has been a while since the Tether (iFinex, the parent company of the cryptocurrency exchange Bitfinex—the issuer of the stablecoin USDT) turmoil has passed, but a series of problems caused by the largest stablecoin with the highest market value are worth pondering by the cryptocurrency industry!

Due to conversion outside the U.S. into

bitcoin

The Attorney General of New York State believes that the two companies, Bitfinex and Tether, have made up for losses of up to US$850 million, but they still need to pay US$18.5 million in fines and report their reserves to regulators every quarter. Not only that, they are in New York Trading activities in the state must also be halted to protect investors from fraudulent virtual or cryptocurrency trading platforms.

We can see from the above processing that although the fine amount this time is not high, Tether is required to disclose a lot of content on a regular basis. The next thing that can be expected is that the New York State Attorney General's Office will definitely monitor Tether very closely, because they still have regulatory power. In addition, this "settlement agreement" also lists a long list of information disclosure, which means that Tether must comply with relevant requirements. Once Tether fails to comply, no matter when and where, the New York State Attorney General's Office will Take extra action again.

Although the New York Attorney General's Office did not disclose whether it cooperated with the US Department of Justice to investigate Tether, even if the US Department of Justice did not get involved, other states could still participate. New York State is just the beginning, and California and Texas, the two most populous states in the United States, are very likely to follow New York State in launching an investigation into Tether. Local regulators have issued guidelines suggesting that Tether must obtain a license if it wants to engage in crypto activities. In California, while enforcement activity against crypto companies is less aggressive than in New York and Texas, it still appears to require an active partnership with government agencies.

In fact, New York State should and will not be the only government regulatory agency with the authority to investigate Tether and Bitfinex. Attorneys general of other states in the United States or regulatory agencies in other countries are waiting to see how Tether responds and handles the settlement agreement in New York. The state attorney general’s request, especially for the disclosure of reserves, is expected to take some action if regulators are not satisfied with the information disclosed by Tether.

secondary title

How important is Tether to the encryption ecosystem?

However, since Tether's reserves are not stored in the exchange's bank account, it will bring some risks. Once Tether goes wrong, the impact on the entire market may be the same as the theft of a leading cryptocurrency exchange. resemblance. For centralized trading institutions, it is equivalent to "lost" Tether. The difference is that the exchange is difficult to be responsible, because almost all cryptocurrency exchanges are providing Tether trading pairs. Once there is a problem, it will affect the entire stable currency. Market confidence will also affect the stability of the cryptocurrency market.

epilogue

According to Tether Limited, each USDT/Tether in circulation is 100% backed by actual legal tender, and Tether Limited is a third-party legal tender custodian supporting USDT/Tether. When the user deposits legal currency into Tether Limited's bank account, Tether Limited generates and credits the user's Tether account, and Tether enters the circulation market. The amount of fiat currency deposited by the user must be equal to the amount of Tether issued to the user (eg: 500 USD deposited = 500 USDT issued). Next, the user trades with USDT/Tether, deposits USDT into Tether Limited to convert it into legal currency, and finally Tether Limited destroys Tether and sends the legal currency to the user's bank account. From this process of capital flow, we can see that Tether has maintained a 1:1 USD peg exchange rate, so Tether is very important to exchanges and the wider encryption ecosystem.

Judging from the problems that have occurred with Tether, cryptocurrency exchanges cannot be taken lightly, because regulators have become more and more strict about their transparency requirements. In fact, exchanges and cryptocurrency exchanges have begun to plan ahead, and they have gradually chosen other stablecoins based on fiat currency collateral to hedge risks, such as stablecoins issued by some licensed and approved cryptocurrency companies. Although USDT/Tether still dominates, other stablecoins seem to have begun to exert their strength and catch up. More and more cryptocurrency exchanges have begun to list other stablecoins. Although they cannot replace USDT/Tether at once, this kind of The balance trend will slowly develop, and Tether's influence on exchanges will gradually weaken.