What do Tether USDT and the 2008 Great Recession have in common?
CoinDesk- Too Big to Fail? Tether Might Still Be Crypto's Ticking Time Bomb
Toffer Wayne's comments
Another article has appeared, linked above, which is banging the drum about the systemic risks that #Tether USDT poses to the #crypto markets. This is far from the first article on this subject, and won't be the last, until Tether does have a substantial sell-off or another major event occurs like in 2008. Within my #youtube videos on #Tether I discuss the existential risk that USDT poses to the markets, similar to the insurance firms, banks, and investment houses that were labelled "too big to fail" in 2008 during the early days of the Great Recession.
But the company's online critics have long alleged that Tether, which has close ties to the crypto exchange Bitfinex, has been issuing more USDT than it has dollars in the bank, in order to drive up the price of bitcoin.
That's a problem for investors because tether is rare among cryptocurrencies in that it carries counterparty risk - in other words, the possibility one party to a contract may not fulfill its end of the bargain. In Tether's case, the "obligation" is redeeming USDT tokens for dollars.
But why is #USDT such a risk, simply put it is the main source of liquidity within crypto exchanges outside the United States; this is seen within the extreme amount of volume that #Tether trades on the average day. I have always found it curious that its volume often exceeds its market cap, showing it has high velocity within the market - i.e. very few users if anyone #HODLs #Tether.
"Tether is the only 'cryptocurrency' with trading volume that regularly exceeds that of its market cap. This means the entire Tether supply changes hands regularly, sometimes more than once a day. ... This is important to know because it tells us that Tether is used for trading A LOT. It's one of the main sources of liquidity in the cryptomarkets."
"Liquidity is the lifeblood of a market. It's what makes prices stable and seamless trading possible. The consequences could be far-reaching. What happens if Tether does turn out to be shaky? ... What if this large source of liquidity suddenly evaporates?"
How will this all end?? In the words of Warren Buffet I think very badly, but it might take several more months for the bleeding to begin, and the systemic risk to become a reality.