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RE: Tether's (USDT) Market Cap breaks a $250M. A word of caution to all that hold it, and a case for why bitUSD is a superior alternative.
- Why would exchanges care? USDT has volume enough volume that it generates revenue in the form of fees. Their customers are the ones with the exposure. The exchange's exposure is minimal in comparison - only any USDT they claim in fees (assuming they don't simply collect the fees out of assets USDT is paired with). If they do earn any in fees, it can go right back onto the order book it came from. If Tether collapses due to a bank run, the exchanges listing it will don't lose money, only their customers do.
- BitUSD is remarkably stable, especially considering the peg is maintained by market forces rather than a centralized entity. bitCNY, which has a higher market cap and higher is even more stable. Tether also fluctuates, historically less so, but all that has gone out the window since their banking relationships became troubled not very long ago. It's historical stability comes at the cost cost of introducing counterparty risk. Coinmarketcap has historical data: bitUSD, bitCNY. Keep in mind, that BitShares 2.0 was launched in October 2015. A bunch of the parameters and economic incentives governing SmartCoins were tweaked in the upgrade and the subsequent months. This is a big part of the reason why SmartCoin price stability has improved over time. You can see from bitCNY (higher volume and liquidity than bitUSD, largely attributable to the bootstrapping efforts undertaken by our eastern shareholders) that as trade volume increases, so does stability. Additionally, a holder of bitUSD can create settlement orders, if they wish to redeem their bitUSD for the backing collateral at a fixed price - without any slippage. Settlement orders have a 24-hour delay on execution are currently offset from the feed price by 1%; this parameter is not hardcoded, and may be altered by committee vote (which is elected by shareholder stake vote, as in a traditional corporation). If there are not enough bids in the order book to satisfy a settlement order at the time that it executes, it will do so by eating open debt positions, starting with the least collateralized. This is accomplished by the smart contracts in which collateral is held. From the side of a trader with an open debt position, is no different than being margin called due to an insufficient collateral ratio, except it can happen even if their collateral ratio is above the minimum.
- In a black swan event - where the price of BTS collapses suddenly, rapidly, and with no hope for recovery:
" All guarantees of SmartCoins are subject to the caveat that a SmartCoin can never be worth more than the collateral backing the least-collateralized short position. In normal market conditions, the value of the collateral is always more than sufficient, but, from time to time, markets can rapidly revalue the collateral. If this revaluation happens faster than the short positions can be forced to cover, then all SmartCoins are liquidated at the exchange rate of the least collateralized short position. This is similar to an insolvent bank converting its deposits to equity." In other words, all remaining collateral is automatically split up among the people who held the SmartCoins.
Personally, I believe the likelihood of such a disaster to be quite low: more specifically, I think that anything monumental enough to trigger a black swan event will leave us all with far greater concerns than what the purchasing power of our money is.
The other day, I believe for the first time in its history, the DEX went down unexpectedly due to a bug. There was a transaction created and added to the ledger that crashed all of the active witness nodes (block producers). If you look at the price chart, the red candles immediately following the downtime are considerably larger, but there is no way that selloff can be reliably attributed to the unplanned and unexpected maintenance of the network given that Bitcoin and almost every other cryptoasset show the exact same pattern on their price charts for the same exact time period. The speed with which people from all over the world rallied, identified a the problem, followed by its cause, and then created and deployed a fix was nothing short of amazing. I would consider it a bullish indicator more than anything else.
Thank you @ashaman. That was insightful.