My submission for @yohan2on homework task for week 6 which is about;
Homework task: Write about any one of the following stable coins;
Tether(USDT)
Steem backed dollar(SBD)
DAI
I am writing about Tether this week. Let me begin with brief introduction of Stablecoin and than Tether.
Sablecoin
We all know that price volatility of Bitcoin and Altcoins is the major concerning factor barring many investors from heavy investments, because risk - benefit analysis lies at the heart of investment. Stablecoin as the name implies is a cryptocoin aimed to adress the issue
of price volatility . Stablecoin is trying to do so by collaterlization by means of flat (US$) or reserve assets like gold. Based on collaterlization , stable coins may be classified as:
Fiat Collateralized stablecoin - Tether (USDT) .
Crypto collateralized stablecoins - DAI
Non collateralized cryptocoins - Basecoin.
Commodity collateralized - Digix (DGX).
Tether (USDT)
Tether is a fiat {US$ (USD₮), euro (EUR₮) , yen (CNH₮)} backed stablecoin launched in 2014 on Bitcoin blockchain by using omni layer protocol. Later it widened its base to other blockchains too. Just 2 days ago, Tether announced its launch on eighth blockchain named Solena network". Tether
bridges the gap between cryptocurrency and fiat currency. Before launch of the existing Tet tokens , a precursor coin by the name of " Realcoin" was introduced which facilitated (renamed to) launch of Tether. The Tether maintains 1:1 ratio with US$ , however like many other controversies related to Tether, this ratio has also been theme of controversies.
Source
What benefits does Tether offer?
Protection against price volatility.
Price volatility of the cryptocurrencies gave rise to stablecoins. Tether being fiat anchored cryptocoin , the reserve assets are there to mitigate the swing in price. The timely action by central authorities in response to market variation also plays role in stabilising prices.
Cent percent Back up.
One of the fundamental and catchy claim about Tether that we know is " Every token is 100% backed by fiat reserves". The term reserve is used in broader perspective. It doesn't only include US$ (1:1 pegging) , as we generally presume it to be. Company has been offering loans to third parties and the returns collected therby are also added to reserve pool. Moreover, tether follows proof of reserve configuration. It is achieved through engaging Omni layer protocol, bank accounts to receive and send fiat currency, professional auditing system etc.
Exchange and Storage asset.
Being fiat pegged , it has a great potential of being used as storage asset as there is no fear of any wild devaluation and the same holds true for it being used as an exchange asset on day to day basis unlike other cryptos. The price volatility of the cryptocoins is a greatest hurdle for traders to accept them as exchange coin on routine basis.
Transparency.
Being a blockchain based token, there is no question of it not being transparent. Different details pertaining to Tether are published routinely and are accessible to everyone, anywhere and anytime. For details click here. However, the decentralized nature of the asset has been frequently questioned because of central authorities regulating reserves.
Easy to understand.
The colletralisation and derivative strategies adopted by other stablecoins are comparatively difficult to understand for non- technical users or we can say that they demand more technicality to adopt for successful utilisation. The one to one backing of a Tether is relatively easier to understand and thereby making it competitively more advantageous over its counterparts.
Shared advantages with Bitcoin.
Tethers inherit the properties of the Omni Layer protocol which include: a decentralized exchange; browser based, opensource, wallet encryption; Bitcoin based transparency, accountability, multiparty security and reporting functions.
[Source: Tether whitepaper]
Tether Technology Stack
[Source : Tether white paper ]
Looking carefully at above diagram, we can see 3 layers of tether technology and numerous features. The 3 layers that are there :
First Layer : Bitcoin Blockchain.
Second Layer : Omini Layer Protocol.
Third Layer : Tether Limited.
It basically represents a multi layer system of checks and balances that are in place for effective functioning and survival of Tether in market. Each component has been allocated definite tasks for smooth functioning.
Conclusion
Tether is a fiat pegged cryptocurrency based on the well established and secure blockchain of Bitcoin. For every Tether issued, one US dollar is reserved to maintain solvancy equation as TUSD = DUSD. These characteristics of tether makes it independent of market forces.
Reference:
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Hi @drqamu
Thanks for attending the 6th Crypto course and for your effort in doing the given homework task.
Feedback
Indeed, Tether's fiat reserves play a very significant role in ensuring it's stability.
You have over made the following errors in your article.
Kindly Change
"flat" to "fiat"
"Terther" to "Tether"
Otherwise, this is very good work. Well done with the research. You were straight to the point. You had the content. It's a very interesting read. Keep up the hard work.
Homework task
9
Edited and thanks.
https://twitter.com/Qamran7007/status/1371083369774125057?s=20
The bad thing about Tether, at least in its original blockchain, is that it has very high fees for small transactions.