Is Tether still a viable alternative to FIAT to crypto trading?

If you ever traded on Bittrex or Poloniex, chances are you would have noticed the symbol USDT. And just like many other (new) crypto investors, you you might have initially mistaken it as the actual US Dollar currency. After all, the ticker is very similar and the cryptocurrencies denominated in USDT seem to trade at the same price as they do on FIAT exchanges like Kraken and Bitfinex.

And that is exactly the point.

Tether (USDT) is a cryptocurrency designed to be trading around the same price as the US Dollar is. It is backed by real US Dollars and is supposed to be redeemable for USD. Also USDT could be issued in exchange for USD on a one-for-one basis. The 324,951,600 tokens of USDT in circulation are supposed to be completely backed by a bank account holding the equivalent of USD. The company stated the following in their whitepaper:

"We propose a method to maintain a one­-to-­one reserve ratio between a cryptocurrency token, called tethers, and its associated real­-world asset, fiat currency."

Tether has been very successful in its pegging to the US Dollar due to the fact that tokens could be redeemed or issued against low fees. As a result any difference in USDT to USD could be easily arbitraged. As such, one could effectively trade on Bittrex or Poloniex with exposure to USD as one would on fiat exchanges. And because USDT actually has a few advantages of that many cryptocurrencies have, mainly the fact that no fiat has to be stored on exchanges and the 'crypto fiat' can be easily moved away from the exchange, it was/is even preferred by many traders.

However since April 18th this year, redeeming USD from USDT with the company Tether is no longer available. In an official statement Tether explained:

"Since April 18, 2017, all incoming international wires to Tether have been blocked and refused by our Taiwanese banks. As such, we do not expect the supply of tethers to increase substantially until these constraints have been lifted."

Apart from the fact that tokens cannot be redeemed with the company is of course an issue. And as already more than 4 months have passed since the issue was reported, it doesn't seem to be a very temporary one. A bigger problem though is the fact that the token amount has been reported to be increasing substantially. One might ask where these (millions of) Tether tokens are coming from and if it still is truly backed by USD. These are questions for which investors currently have no answers. And of course these concerns should be addressed by company sooner rather than later.

So how is USDT doing now then?

USDT is still being traded quite heavily and successfully. On Poloniex the trading pair BTC-USDT seems unaffected. It has good liquidity and tight spreads in general.

Compared to Kraken where BTC is traded against USD (amongst other fiat currencies) the order books seems thick enough.

But you can see there is a difference in value of the quotation of BTC. This is explained by the USDT/USD market on Kraken.

USDT is quoted and trading slightly above par largely explaining the difference between the USD and USDT values of BTC in both markets.

Conclusion
As there is ample liquidity in trading against USDT and the premium on trading USDT is relatively small, I think it is safe to continue trading against the crypocurrency. Having said that one should be mindful of an increasing spread on the cryptocurrency by checking FIAT exchanges where it is traded. If the liquidity is still there on the markets where other cryptos vs USDT are traded and the liquidity is still there on the FIAT exchanges that trade USDT against USD, it is most likely a great way to trade on non-fiat exchanges while keeping exposure to the USD. However one should continue to monitor this liquidity on a continuous basis.

Keep safe and stay tuned!

References:
https://bittrex.com/
https://www.poloniex.com/
https://www.bitfinex.com/
https://www.kraken.com/
https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf
https://tether.to/conversions-off/
https://cointelegraph.com/explained/tether-case-explained
https://en.wikipedia.org/wiki/Fiat_money
Images:
http://bitcoinist.com/tether-the-next-generation-financial-platform/
https://www.kraken.com/
https://www.poloniex.com/