Is Tether as stable as they claim? - Crypto in Plain English - Episode 110 - by cryptohunt.it

Is Tether as stable as they claim?

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

Today, let’s take a critical look at Tether, the largest stablecoin. Or at least that’s what it is marketed as - but what’s behind those claims?

Remember that stable coins are usually backed by a real world asset. That means, for example, that for each stable token worth $1 Dollar, there should be a reserve of real money worth the same. This way, if all stable tokens are exchanged back for cash, everyone would get their money back.

In reality though, stable coins are never fully exchanged back at any given point, and that allows operators to get away with backing them only partially without having liquidity problems in most scenarios. And that’s what Tether did.

The problem is that nobody really knows how much money is actually in their reserve. That is because Tether simply doesn’t give details. And you’d be surprised that after getting sued by the US government, the company had to admit that only 3% of reserves are in actual cash, and almost all of it is in what they call “commercial paper”, which critics say can’t be audited properly.

How’s that a problem? Consider a case where 10% of Tether owners suddenly want to withdraw for cash. The company may not be able to sell their “commercial paper” fast enough, or might not even have enough in the first place.

So, next time you need to use a stable coin, consider what it is backed by. There are fully government audited alternatives, like USDC – so you have the peace of mind to know what is actually keeping them stable.

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.