Some thoughts on stable coins (and particularly USDT)

in #cryptocurrency4 years ago

I'm quite often asked different questions on my thoughts on crypto currencies, and USDT is among those. USDT has become quite popular, many of my peers is using it. Personally I think it's madness to puts lots of money into the USDT as well as to consider that as a "safe haven", and let me briefly give some few reasons on that ...

  • You have to trust the stablecoin itself. Designing a good currency peg is very difficult, few have succeeded doing it in the long run. For USDT, as far as I've understand, we have to trust one company to keep the value stable. So far USDT has been very stable towards the USD, but there is no guarantee it will keep up like that, and if it crashes it may crash very hard. With i.e. Bitcoin, there is a chance that the dollar value of your funds may both go up or down or stay stable - but most stable coins can only stay stable or go down, there is no upside. Exceptions apply, like the Steem Backed Dollar, one SBD was worth 16 USD in it's heydays, another example that pegging is difficult (and they ruined the backing completely due to greedyness earlier this year - so by now one SBD is worth like 0.7 USD).

  • I know the typical user would buy USDT on an exchange and keep it there - so there are other risks. Throughout the brief history of Crypto Currencies, multiple exchanges has gone bankrupt with full loss of customers portfolio. Most exchanges also follows national laws and regulations, particularly KYC/AML laws. Your account may become frozen anytime, for unknown reasons.

  • Even if you trust the pegging and can withdraw the stable coin to a wallet you control yourself (and you trust yourself and your wallet), there is also a risk that the USD may collapse. Actually, with the US trade deficit, the insane US national debt, the inflation in the money supply and their "democrazy" casing inept leaders to be voted in, it's a miracle the USD is still going strong - and even if it's still going strong compared to many other currencies, the real value of the USD is reduced from year to year. Coincidentally, browsing through my feed today, I found @lukestokes writing an article on the USD

Now, one may consider the risk of each of the bullet points to be negligible, but please consider the compound risk. I think it's too high. Everything considered, if you need a stablecoin ... I'd recommend physical gold coins.

I do have a fourth point as well - many people are buying and selling crypto currencies and they run to the USDT when their stomach feeling tells them that the value of Bitcoin or other coins will go down. Well, I believe your (and mine) "stomach feeling" is rather worthless. There are always "bigger fish" out there that either have inside information on what way the market price will go, if you believe you have some good information, their information is better. Some of them can probably manipulate the rates as well. They win lots of money in a null-sum game - they prey on the smaller fishes which trades on "stomach feeling". Every time you trade on the exchanges, you should expect to lose some cents to the "bigger fishes" - and you lose in commissions to the exchange as well. If you buy once and hodl it, the costs are insignificant - but if you convert a lot of times i.e. between USDT and BTC due to your "stomach feeling", you should expect to lose money on the trading.


Only once have I owned USDT from what I remember and it's because I was afraid to not loose the train. When I will sell my crypto and I think it will be pretty soon I am sure that it will be for fiat. My national currency or euros. USDT has already proven that it can get to as low as 92 cents so it is not a safe haven at all. I agree with you also with trading between coins as I have paid quite some money on commissions. USD however has appreciated a lot against my currency. Hope it stays that way till I sell...

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Trustless stable coins are the future. Bitshares was the first to do this and now Bitspark uses them to expand there cash point eco system. Cash points give you the ability to buy and sell crypto for cash anywhere globally using your own native currency. Cash is the most liquid asset available and undeveloped countries rely on cash heavily. The unbanked population is ~2 billion globally. Imagine a stable coin for every native currency (180) collateralized on a smart contract to hold the peg value. USD stable coins don't help bridge the liquidity gap between crypto and exotic currencies.

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