Tether and the Role of Stable Coins

Stable coins were created as a result of the volatile nature of bitcoin and most cryptocurrencies. Creators of stable coins will usually refer to traditional monetary theory when explaining the purpose behind stable coins. According to theory, a fixed supply currency will always be volatile. This is because a fixed supply value cannot respond to severe fluctuations in demand without corresponding fluctuations in the value of the unit. If bitcoin were to become a widely adopted currency the volatility would decrease, however because of its fixed supply it may always retain some element of hyper volatility. This example can be seen in gold, as the supply of the asset is rather consistent, the value has a tendency to fluctuate around 15% annually.

Currently, Tether is the 11th ranked cryptocurrency and the most successful stable coin. Tether is stable because it is pegged to the US Dollar through the corporation Tether Limited. Although they are not directly useful for making profitable investments, stable coins do have proven use cases. For example, Tether provides liquidity for cryptocurrency exchanges. If an exchange wants to implement USD or other fiat currencies, this action typically requires substantial regulation and can lead to future roadblocks. As of now, it has been simpler for exchanges to list a stable coin, or a coin pegged to the dollar.

Rather than removing one’s funds from an exchange to avoid temporary hyper volatility, a trader or investor could ideally move their funds into a stable coin such as Tether. This could be a positive alternative to converting all of an investors crypto into fiat, then back into crypto. This could also save time and help avoid possible tax implications. Stable coins can also be a better way to fund raise for ICOs because any founder or developer knows how frustrating it can be to fund raise when your token price is incredibly volatile.

The internet remains skeptical about Tether. Tether is often described as a scam. This is due to their close ties to the crypto exchange Bitfinex. Tether was supposed to undergo an audit earlier in 2018, but they suddenly ended their relationship with the auditing firm Friedman LLP. This action led many investors to become highly skeptical of Tether. The firing of Friedman LLP could have occurred for various unknown reasons, but this action ultimately leads skeptics to wonder if Tether is issuing more coins (USDT) then they have dollars in reserve. Many on the internet question the validity of the system, ‘Has Tether been printing coins out of thin air? What if Tether does not have full reserve?’

Regardless of the success or failure of Tether, stable coins do have applicable use cases for investors, fundraisers, traders, and developers. Tether may not make money as a direct investment, but the use cases provide crypto enthusiasts with a temporary stable zone to store their crypto.

Disclaimer: I am not a financial advisor, this is not financial advice. Please do your own research and make objective decisions. This article is intended to educate readers on Tether. The author does not currently own any Tether (6.22.18)