Before we get started, I want to clarify what stablecoins are. Are cryptocurrencies that have a one-to-one parity with the dollar. Or at least, that’s his promise.
There are different types depending on the backing they have: fiduciary money, collateral or algorithms.
Let’s see the best known:
USDT: is the main stablecoin, created by the company Tether. It is backed by fiat money. That is, for each tether issued, supposedly there is a dollar backing it. Why do I say “supposedly”? Because the reserves don’t show that, in fact there is only 84% cash and equivalents. The rest are corporate bonds, secured loans and other investments. This is a potentially serious problem.
USDC: it is the second most important stablecoin, created by Coinbase. It is backed by fiat currency. It is backed 100% by cash and short-term treasury bonds, and has serious audits that guarantee it. Unlike USDT, it has not been fined for lying with its reserves.
ICD: is a stablecoin created by MakerDAO that achieves its parity through collateral, through smart contracts. In short, your value is backed by at least 150% of the value of your backing. They currently hold 39% in USDC, 24% in Ether, 11% in Bitcoin, and the rest in other assets. What if the price of that backing falls? Precisely for this reason they have more than 150% collateralization (although if the fall is enormous, the support may not be enough).
UST – The stablecoin of disaster
UST was another of the most famous “stable” cryptocurrencies, created by the Terra project, which made headlines this week due to the loss of its parity against the dollar.
Unlike USDT, USDC and DAI, the backing that UST has is algorithmic. It is assumed that there is no support for another asset, be it cash dollars or cryptocurrencies. It achieves (or achieved) its parity 1 to 1 against the dollar, through an incentive system.
There is much written on the subject these days and I am not going to stop here. It is only worth adding that, through a protocol, an annual interest gain of 19.5% was promised. And the coin was destroyed:
Risk in USDT/Tether
What would happen if there were problems with USDT, the main stablecoin? It has a Market Cap of USD 76,000M, a figure that is not negligible.
Let’s remember that it only has 84% of its reserves in cash dollars and equivalents. What if the rest of your loans and investments run into trouble? How would they respond to a big bullfight? Tether, the USDT company, has already received millions in fines for lying in its reserves.
Let’s just see what happened this week with USDT
USDT (Tether) came to trade at $0.945. Then, with the passing of the hours, it partially recovered its parity, although it has not yet reached USD 1. Bad omen? Maybe. The reality is that there were investors who exited USDT in search of safe haven and various exchanges made transfers difficult because they had to process $3B worth of bailouts in a very short time.
Unlike UST, a run on Tether is likely to deal an even more serious blow to the credibility of the crypto world. Why? Because there are those who question the veracity of the support of this stablecoin.
Much of the crypto world is still smoking in a room full of gunpowder, dynamite and gasoline. The first bomb has already been activated and brought down UST and LUNA. The rest remain calm. Ignorance is bliss.
The immense injection of liquidity by the Federal Reserve was vital in this construction of countless crypto projects. Undoubtedly, many of them are and will be useful. Just like Bitcoin and Ethereum, whose technologies will endure and are simply revolutionary.
Not all crypto world is of the same quality. For something Bitcoin and Ether fell 50% from their highs and the rest of the cryptocurrencies much more.
To finish, I want to invite you to download a free report that I prepared so that you can face this crisis and have the tools to know how to beat the market. I think it will be very useful to you. You can download it at the following link: https://informes.cartafinanciera.com/
CEO of Charter Finance
Source: Ambito
