forexbroker.ae logo

ForexBroker.ae > Cryptocurrencies > Tether

Tether Review: Is it legit, safe and trustworthy for UAE citizens and residents?

Tether coin is a cryptocurrency that is designed to have the same value as one US Dollar at any given time. This value is intended to be stable. This means that the price of Tether in the future remains unknown, regardless of whether or not the price of US dollars goes up or down.

The most essential thing to note is that investors in Asia appear to still have trust in this coin.

Visit Tether Website.

Trading of the stable coin Tether is made significantly simpler by the Chinese cryptocurrency exchanges, which account for sixty percent of all trading worldwide. A research by Diar indicates that exchanges are responsible for transactions totaling more than 10 billion dollars worth of USDT.

Tether has made the news that it would release USDT on the EOS blockchain, which will provide improved interoperability across blockchains. EOS is notable for being one of the most circulating coins that has been added to the exchange in recent times, and it is now claiming a market value that is greater than $ 8 billion.

Tether continues to be the most reliable asset for storing money, in spite of the various forecasts that the value of the dollar would decrease in the future. However, it does not appear that the price volatility of USD is a significant impact in cryptocurrency trading.

If you are interested in a virtual currency that offers a solid return, USDT may be an alternative that is beneficial for you. Due to the fact that it is released as a stable coin, it is recommended that you purchase it as a potential hedge against cryptocurrencies rather than treating it as an investment.

In the aftermath of the demise of Terra's UST stablecoin, the largest stablecoin in the world measured by market capitalization, Tether (USDT), exhibited warning indicators that it was moving away from its dollar peg. The price, however, has returned to its previous level, and the chief technological officer of the company recently informed investors that the currency continues to enable redemptions.

The value of Tether, which attempts to maintain a parity between USDT and USD at a rate of 1:1, reached an all-time low of $0.9485 on May 12 when UST plummeted. It has been trading closer to $0.9988 than it has been to $1, which would be the precise parity.

What is tether, often known as USDT? In what ways is the USDT stablecoin protocol distinct from the UST protocol? What does it indicate for tether that the infection originated from UST? After the recent volatility, what are the most current price predictions for the cryptocurrency tether? In this post, we will examine what took place and provide answers to the issues raised.

Both tether (USDT) and TerraUSD (UST) are examples of stablecoins, which are digital coins whose value is fixed to that of another asset or currency, such as the United States dollar. The purpose of these products is to give investors the ability to save their money in a digital format without exposing them to the price fluctuations that are associated with cryptocurrencies such as bitcoin (BTC) or ether (ETH). Stablecoin owners have the ability to utilize their coins in decentralized finance (DeFi) apps to borrow money, lend money, and earn interest on such transactions.

After Tether's USDT and USDC, the UST soon gained in popularity to become one of the most prominent stablecoins. The payments company Circle Internet Financial, the cryptocurrency exchange Coinbase (COIN), and the bitcoin mining company Bitmain are all members of the consortium that manages it.



Prior to the crisis, the UST had a market capitalization of $18.7 billion, while the USDT coin was valued at $83.24 billion and the USDC was valued at $53.53 billion. Since then, the value of Tether has decreased to $74.12 billion, while the value of USDC has remained same at $52.78 billion, and the value of UST has plummeted to one billion dollars.

The fact that UST is an algorithmic stablecoin, as opposed to USDT and USDC, which are both collateralized stablecoins, is one of the most important distinctions between these three cryptocurrencies. An algorithmic stablecoin is a non-collateralized stablecoin that uses algorithms to keep its value constant.

The UST algorithm made use of an on-chain swap mechanism that traded one UST for one dollar's worth of LUNA, regardless of the price of either cryptocurrency at the time. This is done with the intention of encouraging users to trade their UST for LUNA if the value of the stablecoin drops below $1 or trade their LUNA for UST if the price of the stablecoin rises above $1. This will result in some of the LUNA being burned and the amount of LUNA available in circulation being reduced, which will in turn support the price. The remainder was transferred to the treasury of the company.

The rise of UST was propelled forward by the Anchor protocol, which offered holders an interest rate of 20% on their deposits. However, Terra was covering the 20% interest rate with monies from the corporate treasury. If users did not mint more UST and drive up the price of LUNA, Terra would not be able to maintain the payments and would be forced to stop making them. On May 9, traders started selling UST in an effort to break the currency's linkage to the US dollar. As a result of UST sales, an ever-increasing amount of LUNA was generated, which led to an increase in the rate of hyperinflation.

The price of USDT relative to USD has been stable despite the fact that the value of UST fell to $0.7934 on May 12 and has continued to plummet, reaching barely $0.07601 on May 19, while USDT/USD pricing has stabilized. In an effort to stabilize LUNA, the Luna Foundation Guard was obliged to liquidate its bitcoin holdings, despite the fact that it had purchased bitcoin in response to complaints that the dual-token system was not backed by collateral. However, this endeavor was unsuccessful.

The collapse of the Terra stablecoin caused a contagion that spread not only to bitcoin (BTC), as more than 80,000 coins were dumped onto the market in a short amount of time, but also to the tether cryptocurrency, which has in the past been questioned regarding whether or not its dollar peg was fully backed by collateral. The question of whether or not its dollar peg was fully backed by collateral was brought up again after the collapse of the Terra stablecoin.

Anders Nystee and Mads Eberhardt, analysts at the Dutch bank Saxo, highlighted the following on May 12 in a study that they conducted:

Tether, the most popular stablecoin, is rumored to hold around 85 percent of its reserves in cash and cash equivalents, with the remaining 15 percent split among a variety of assets including corporate bonds and other digital tokens. Tether, on the other hand, has been the subject of controversy in the past regarding the level of transparency surrounding its dollar reserves. As a result, the market has been wondering for years what assets make up Tether's reserve and whether or not Tether actually maintains a full reserve to back its stablecoin.

The market's memory of Tether's lack of transparency with respect to its reserve has been updated as a result of the incident of UST, and these controversies are likely what is pushing stablecoin investors away from USDT. Even after the CTO of Tether posted on Twitter that they were continuing to honor USDT redemptions at $1 and that the redemption of more than $300 million has been carried out over the past 24 hours, there was a sell-off in USDT this morning. This occurred despite the fact that Tether was continuing to honor USDT redemptions at $1.

Arcane, a business that does research on cryptocurrencies, had analysts write on May 16 that the value of tether dropping to a low of $0.945 on the FTX exchange was "a clear warning of peak irrationality and instability in the market." It was stated that:

Large price movements away from the $1 peg in USDT typically occur during times of high market stress and liquidations, also known as times when there are many chances for arbitrage. The discounts on Tether that were offered on Thursday produced alluring chances for funds that had access to Tether redemptions. This was likely the cause of the decline in Tether's market value. Since then, USDT has reestablished its $1 parity.

The analysts then on to discuss the "implications of a hypothetical USDT collapse," although they qualified their statement by saying, "We do not believe this as a plausible outcome, therefore be extremely cautious when it comes to hopping on the USDT FUD bandwagon post the very unrelated UST crisis."

Imagine that there is a sudden and drastic de-pegging of the USDT. It is possible that it will have a peculiar effect on the market in the short run. On the derivatives market, more than fifty percent of the open interest is based on USDT collateral. In the event that tether were to fail, strange destabilizing repercussions would be seen in the derivatives market. As the value of the collateral drops, the price of BTCUSDT would skyrocket in comparison to the price of Bitcoin in US Dollars. In a move that defies logic, this might result in a short squeeze that drives prices to stratospheric levels and total and total anarchy in the market.

After the fact, it would most certainly be a significant setback for the trust of the sector as a whole. It is tough to put a value on the impacts. It is possible for financial institutions such as exchanges, funds, and market makers to fail. The experts said that it would be "an Mt. Gox-like incident," alluding to the 2014 theft of $460 million worth of cryptocurrency from the Mt. Gox exchange in Japan.

As of the 20th of May, the algorithm-based forecast site Wallet Investor anticipated that the future price of tether will primarily remain tied to the value of the US dollar over the course of the following five years. Its USDT prediction anticipates relatively minor shifts in the exchange rate, with possible outcomes ranging from $0.997 to $1.004.

According to the price forecast made by DigitalCoinPrice, the price of one tether (USDT) currency will rise to $1.01 in June from its current level of $1 in May, and it will remain at that level in 2023, 2024, 2025, and for the remainder of the decade until 2030. Forecasters who rely on algorithms were unable to make longer-term projections for the years 2040 and 2050.

When contemplating any tether (USDT/USD) prognosis, it is vital to keep in mind that cryptocurrency markets continue to be very volatile, and that it is difficult to precisely foresee unexpected occurrences such as the Terra crash. As a consequence of this, analysts and forecasters reliant on algorithms can and do sometimes get their predictions incorrect.

If you are thinking about investing in cryptocurrency tokens, we strongly advise you to conduct your own research before making any decisions. Before making any kind of trading choice, it is important to first have a look at the most recent market trends, news, fundamental and technical analysis, and opinions from market experts. Remember that the performance of the past does not guarantee the returns of the future. In addition to this, you should never risk money that you cannot afford to lose.

Tweets by CoinMarketCap
Tweets by CoinDesk
Tweets by FXStreetNews

It is essential to conduct your own research on a coin or token before deciding whether or not it should be included in your investment portfolio in order to make the most of the highly unpredictable cryptocurrency markets. Your capacity for risk as well as the amount of capital that you want to put into an investment will determine whether or not USDT is an appropriate asset for you.

 

 

Reviewed by Arpita Singh

Arpita SinghArpita Singh is the main writer at ForexBroker.ae. As a senior investment professional with 10+ years of experience working at top-tier Private Equity and Sovereign Wealth Fund; she is also responsible for fact-checking concepts, reviews, and related details about brokers and exchanges listed on this website. Full Bio.