Concerns surrounding the bank reserves of Tether continue to bubble on the surface with the stablecoin still not be able to regain its 1-to-1 US Dollar peg weeks after confidence jittered investors. Along with the sentiment around Tether, other stablecoins have actually gained against the Greenback shifting dollar-pegged cryptocurrencies into a forex realm, none actually stable, deviating from their perceived peg. Still, markets have responded correctly and actual dollar value of Bitcoin remained the same, despite appearing to carry a premium.

The dust around Tether hasn't completely settled with the stablecoin still a few pips off dollar parity. The close connections between Tether and Bitfinex who last week paused customer fiat deposits caused markets to discount the price of Tether from insolvency fears (Diar, 15 October & 25 June).

To add fuel to fire, when Bitfinex did reopen their deposits, it was a selective process administered by the exchange with a peculiar warning about sharing their banking relationship with anyone cautioning that “there may be serious negative effects associated with this information becoming public” further deteriorating faith in the closely exchange-linked stablecoin.

|| ….TO THE RESCUE

The opportunity was not lost on cryptocurrency exchanges who last week were quick to respond to market concerns with many adding more stablecoin offerings, and announcing that more are to come.

In fact, the number of dollar pegged cryptocurrencies have become so many that the third largest exchange Huobi have decided to amalgamate major stablecoin deposits into its own house dollar stablecoin "HUSD", allowing to on-ramp and off-ramp into the exchange with USDC, Gemini Dollar, Paxos Standard, and Tether.

|| TRADING PREMIUM? NOT SO MUCH

While the crypto-sphere took to highlight the risks of Tether by indicating the price of Bitcoin on exchanges that use the controversial stablecoin as a "risk premium", the math indicates otherwise.

Markets have correctly valued the Bitcoin/Tether trading pair should someone which to convert out to US Dollars, via for example, Kraken who has a USD/Tether trading pair (see chart). The value of Bitcoin in actual Dollar terms hasn't changed - it's only changed against another cryptocurrency whose perceived value of $1 has dropped.

|| US EXCLUSIVE: REGULATED STABLECOINS

New stablecoins that have stolen headlines in recent months, USDC, Paxos, Gemini Dollar, all come with the approval of the New York Department of Financial Services (NYDFS), the orchestrators of the contentious BitLicense. This oversight has very well given investors peace of mind, all now trading at a premium.

But there is a problem. And it’s the same problem that has caused Tether to be seen as a systemic risk to the cryptocurrency ecosystem.

"There is no financial report framework with respect to audit conformity with a stabelcoin. So you can't perform an "audit." You must instead rely on a 3rd party to attest to whether an assertion (that there is a 1:1 peg) is accurate."

Cameron Winklevoss, Co-Founder, Gemini

|| 2020: SAME DISCUSSION, DIFFERENT COIN?

While Tether has now repeatedly failed to produce and release an ever so promised proper audit of their banking reserves confirming outstanding tokens, they have released an attestation (Diar, 25 June).

And according to Cameron Winklevoss, Co-Founder of Gemini, and the recently launched Gemini Dollar, an attestation might be as good as it gets (see quote box.) Mr Winklesvoss asserts that there is no reliable way, currently, to audit a stablecoin.

The disconnect between a blockchain ledger and a bank ledger hasn't gone unnoticed on a basic auditing level and unlikely to sit well with cryptocurrency crowds. However, it is notable that all NYDFS regulated stablecoins have appointed audit firms, whereas Tether have in fact, fired theirs.

|| STABLECOINS…STABLECOINS EVERYWHERE

While other stablecoins are beginning to gather pace, their market share of stablecoin trading volumes remain minute. With few token trading pairs, Tether still dominates. In the case of Binance, for example, Tether volumes still account for 98% of the total stablecoins traded volume (see chart 3).

|| MONEY GOES BACK INTO BITCOIN

What is evident, however, is that traders have now become more amenable to the volatility of Bitcoin rather than risk holding Tether. Trading volume of USDT pairs have dropped by a whopping 25% from the 15 October “peak crisis” and 17% down from the start of the month on Binance (see chart).

And trading volumes on OKEx, the largest token exchanges following Binance also saw an uptick of trading volume in BTC pairs. Whether or not temporary, market data of this blip in stablecoin trading is telling.