Stablecoins are neither safe nor stable.

$USDC, $DAI, and Tether $USDT have depegged several times throughout their history, temporarily adjusting at prices even 20% lower than the US dollar.

The privately issued stablecoins do not represent the USD or any other coin.

Not even economies can single-handedly peg their national currency to the US dollar with no risk. Without the FEDs’ approval and support, every currency pegged to the USD will fail.

While a permanent depeg and collapse of USDT is possible, not the peg but centralization is the weakest link.

Private companies operate these stablecoins (besides DAI). The token model is based on trust, although with vast transparency differences dividing their business model.

As centralized entities in control of funds and tokens, one might expect them to abide by the regulations of the jurisdictions their operations take place.

Still, Tether’s lack of transparency succeeded in supporting the “trust me bro” attitude it entails.

The Tether “Model”

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Lately, we read about Tether again, and while where there’s smoke there is also fire, sometimes the media exaggerate.

Most likely, Tether would not risk its business model to support terrorist organizations, as media suggested. Probably negligence and indifference was the reason. Tether is incompetent enough to realize something is wrong and lacks the means to perform due diligence. Tether also lacks the structure to enforce KYC/AML and will only apply to government requests to freeze USDT in personal accounts.

Thus, as a centralized entity, Tether will again be the target of US and global financial authorities.

Perhaps this is a fear shared by some funds that invest in DeFi right now, as many witnessed a shift from USDT to other stablecoins.

Tether/Bitfinex consists of just a handful of people doing all the work and managing the firm.

Tether will last as long as the US financial authorities want it to last.

As the SEC did with centralized tokens and PoS staking networks labeling them securities, it can take an unfavorable desicion with Tether.

The SEC can get Tether delisted from every exchange.

Already Tether ($USDT) presents one of the shadiest cases in crypto we ever witnessed. The company (if we can call it that) never allowed an independent accounting firm to perform a full audit of USDT reserves.

The operational model raises questions on how an $80 Billion business runs without an accounting department or audit (internal and external). Basically, Tether and Bitfinex lack the structure of a company their size demands.

We might wonder what purpose Tether serves and why some industry players praise and promote the team that operates this obscure scheme (Tether/Bitfinex).

Clearly, Tether contradicts the values of Bitcoin since it presents a purely centralized model. Tether is a “trusted” third party that does not support the transition to a peer-to-peer economy but further expands centralization in the cryptocurrency domain and sustains a casino economy assembled with the fractionalization of exchange reserves.

Closing Thoughts

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The USDT team can claim anything since nobody knows which bank held the reserves or if these reserves actually exist.

People will often wonder what’s the deal with Tether, a company operating an $80 Billion token while ignoring regulations, auditing rules, and transparency.

It is a case study of how it sustains itself due to ties with several prominent individuals and companies in the crypto industry.

Yet, it also takes just one ruling by financial authorities.

As a large centralized entity, Tether is one of the top vulnerabilities of the cryptocurrency industry, an industry that allowed it to grow more than it should have.

• Cover picture on Pixabay (modified)

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