I don’t think Tether is less risky than Bitcoin. Tether is less risky than algorithmic stablecoins, such as the (recently deceased) Luna, or Iron, because its reserves are held in non-crypto securities, and thus it’s somewhat shielded from crypto downturns and market fluctuations. However, I think it’s still vulnerable to a combination of a generalized economic downturn which affects the value of the reserve securities, combined with a crypto market fluctuation that leads to a liquidity crisis, which then turns into a solvency crisis as it becomes apparent that the value of the underlying reserves no longer matches the value of the outstanding Tether. Tether could avoid this by holding all its reserves in “cash-equivalent” securities, such as money-market funds or just US dollars, but the fact that they’ve been extremely vague about reporting details of their reserves makes me think this isn’t the case.
I can very easily see USDT going to zero. I have a harder time visualizing Bitcoin itself going to zero.
(I don’t have strong confidence, what follows is my impression based on what I read)
It’s my impression that a good portion of Tether’s reserves is loans to various companies in the crypto space. Those loans in turn are essentially the reason why Tether is the central stablecoin in a bunch of exchanges.
I would expect that the way Tether speculates with the reserve money is similar to how Alameda speculated with the customer funds.
I don’t think Tether is less risky than Bitcoin. Tether is less risky than algorithmic stablecoins, such as the (recently deceased) Luna, or Iron, because its reserves are held in non-crypto securities, and thus it’s somewhat shielded from crypto downturns and market fluctuations. However, I think it’s still vulnerable to a combination of a generalized economic downturn which affects the value of the reserve securities, combined with a crypto market fluctuation that leads to a liquidity crisis, which then turns into a solvency crisis as it becomes apparent that the value of the underlying reserves no longer matches the value of the outstanding Tether. Tether could avoid this by holding all its reserves in “cash-equivalent” securities, such as money-market funds or just US dollars, but the fact that they’ve been extremely vague about reporting details of their reserves makes me think this isn’t the case.
I can very easily see USDT going to zero. I have a harder time visualizing Bitcoin itself going to zero.
(I don’t have strong confidence, what follows is my impression based on what I read)
It’s my impression that a good portion of Tether’s reserves is loans to various companies in the crypto space. Those loans in turn are essentially the reason why Tether is the central stablecoin in a bunch of exchanges.
I would expect that the way Tether speculates with the reserve money is similar to how Alameda speculated with the customer funds.