What happens when the core promises of a crypto-currency no longer hold true? Frances Coppola, a Senior Contributor at Forbes explains that Tether, a so-called “stablecoin,” that is supposedly pegged to the U.S. dollar may not be as linked to the fiat currency as has been advertised. She writes:
USDT is the foremost stablecoin in the crypto world. Pegged one for one to the U.S. dollar, it is widely used as a vehicle for getting dollars in and out of crypto exchanges. Crypto enthusiasts will tell you that holding USDT (“Tethers”) is the same as holding dollars. But now, Tether, the issuer of USDT, has now admitted that Tethers are not 100% backed by actual dollars. The peg is no longer credible. And Tether itself has morphed into something all too familiar.
She goes on to explain how Tether’s wording of its dollar peg has changed, and then writes:
So Tether does not have 100% traditional currency backing for its reserves. It has “cash equivalents,” which are presumably other cryptocurrencies (like pegging to a volatile asset is such a good way of ensuring stability). And some of its “reserves” are held in the form of loans that it has made to other parties. Tether has become an unregulated fractional reserve bank.
It’s a very risky fractional reserve bank, too. Loans that you can’t sell, can’t pledge for cash, and may or may not be able to call are not by any stretch of the imagination “reserves.” No regulator would let a licensed bank get away with this, even though licensed banks have Fed backing and FDIC insurance. Tether may regard one USDT as the same as one U.S. dollar, but without either the reserves or the central bank backing to guarantee this, its words are empty. The Fed isn’t going to step in and bail it out.
Read more from Coppola here.
E.J. Smith - Your Survival Guy
Latest posts by E.J. Smith - Your Survival Guy (see all)
- What Kind of Life Are You Investing For? - January 31, 2023
- Why Don’t These Mayors Seem to Care? - January 31, 2023
- Warren Miller: If You Don’t Do It This Year, You’ll Be… - January 30, 2023
- Your Investment Focus Is the Foundation for Success - January 30, 2023
- CATO: Global Freedom Is in Sharp Decline - January 27, 2023