Could stablecoin Tether (USDT) collapse? And how? - Crypto in Plain English - Episode 191 - by cryptohunt.it

Could stablecoin Tether (USDT) collapse? And how?

Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

Could Tether, the most popular so-called stablecoin, collapse? It's possible! Let's see how this would go down.

In order for Tether to "de-peg", meaning to drop significantly below the stabilized price of $1, two things would need to happen.

First, a run on the "bank": If enough people lose trust in USDT and want to exchange it back to US Dollars, Tether, the company behind it, would have to sell their significant reserves to make that happen.

Now, if people still don't trust that Tether has enough money to convert it all back to real, hard Dollars, step 2 kicks in: They will dump USDT on the open market for a discount, hoping to avoid the worst.

So, here's the big question: Why would people think Tether can't pay? Don't they claim to be over-collateralized, meaning they have more in the reserve than there are USDTs out there?

Allegedly, but nobody really knows the details. In fact, they have been sued by the US government for shady reporting multiple times. You'll have to assume that many of their assets are volatile in value – such as stocks and crypto. And with the recent wider market crash, Tether reserves might reach a tipping point.

So, will Tether collapse? Your guess is as good as ours. It might take another black swan event to make it trip, but there have been a few of those lately.

Regardless of where you stand on that: always think about the risk/reward of owning something that will never go over $1, but could lose peg and fall way below.

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.