First of all, what is the USDT?

In fact, the USDT is also a kind of token, and the Chinese name is Taida, which was issued in 2015 by Tether Limited, a company formed by bitfinex, the world’s largest cryptocurrency exchange. Tether Company promised to adopt the gold standard method, and every deposit of 1 USDT will deposit a deposit of one US dollar or more in the bank to ensure the anchor exchange rate between USDT and USD 1:1.

Due to the stringent measures taken by multinational governments for the exchange of cryptocurrencies and fiat currencies, the main force of the direct exchange of fiat currencies (such as the US dollar and the renminbi) and digital currencies was driven off-site, while the over-the-counter transaction process was cumbersome and the premium was high, claiming to be equivalent to the US dollar. The USDT became a sweet potato, and trading of other virtual currencies through the USDT became the first choice for many people.

Currently, the USDT has become the basic anchor currency for mainstream exchanges, with a circulation of US$2.5 billion, and the price is basically stable at US$1, which is why many domestic investors have equated USDT with USD.

On the other hand, due to the stable price of USDT, many investors regard it as a safe haven for market fluctuations. When the market was in danger, it quickly replaced the digital currency with a USDT hedge, and when it fell to the bottom, it used the USDT to bottom out.

It is worth mentioning that when cryptocurrency prices fall sharply, holders tend to convert cryptocurrencies to USDT due to risk aversion. This will result in a tighter supply of USDT, and USDT’s off-site premium will be The water goes up. For example, yesterday, when the market fell, the USDT OTC price reached US$1,03, a premium of 3.3%. In January, when Bitcoin collapsed, the premium even reached 19.7%.

How is Tether profitable? On the one hand, during the user’s possession of the USDT, Tether Company collects the interest generated by the user’s U.S. dollars on the other hand; on the other hand, the user withdrawals are subject to a 5% fee.

It can be said that Tether’s business model is very clear. Is USDT really equal to the US dollar? This is not the case.

USDT≠USD

Since last year, USDT’s publisher Tether has been at the forefront.

First, in November of last year, Tether claimed that it had been hacked and USDT worth USD 31 million was stolen by hackers. It said that if the user received the stolen USDT, the company would not redeem it.

At that time, there was news that Tether had caused huge losses to the bears because of the oversupply of tokens, and the bears had seized their evidence. Tether, therefore, deleted a $31 million account and falsely claimed it was hacked.

And all along, Tether has been questioned as to whether it really has its stated dollar reserves, or $2.5 billion. Although Tether refuted this suspicion and called this suspicion “ignorant and unfounded”, Tether did not have the corresponding evidence to prove the account’s deposit amount and corresponding changes.

Then in January of this year, an anonymous analysis report named “The Tether Report” pointed to Tether’s alleged manipulation of Bitcoin prices. The report shows that as of January 4, 2018, Tether has issued a total of 91 million USDTs, especially from September 2017 to January of this year, USDT’s issuance volume has increased 10 times in a short period of five months.

After analyzing the relative price volatility data experienced by Bitcoin, the report concludes that “between March 29, 2017, and January 4, 2018, 48.7% of bitcoin price increases occurred in 91 million new USDT issues. Two hours later, this time only accounts for less than 3% of the total transaction time of Bitcoin.

And directly questioned whether Tether transferred USDT to Bitfinex’s wallet without receiving USD, and used USDT to purchase low-cost Bitcoin for profit or trading.

In general, the USDT is suspected of oversupply, its issuer Tether has a lot of historical black spots, and there is no government guarantee for the USDT redemption. The user clause waives the responsibility to pay the legal currency under any conditions (including the liquidation of the company’s bankruptcy).

Therefore, although USDT’s trading volume has long been at the forefront of digital cryptocurrency transactions and the price is relatively stable, it is not an absolute safe token. Be sure not to equate USDT and USD, and to avoid holding large amounts of USDT for a long time.

Is it replaceable?

Due to the huge market for stable currency, many people have been smashing USDT’s market share. TrueUSD, DAI, and other similar products have also appeared in the market. Bitland also recently led a $110 million investment in Circle, which announced that it will release stable currency. USD Coin. Can these stable currencies replace USDT? First of all, we need to figure out the three ways to stabilize the current currency.

1. Centralized asset mortgage

For example, the two stable currencies USDT and TrueUSD guarantee the value by guaranteeing a 1:1 cash payment ratio. The USDT said in the previous article that the centralization of Tether brings with it the same problems as traditional centralized financial institutions. It is easy to be opaque under the drive of interest and trigger a crisis of confidence. Of course, this kind of opaque way also got rid of part of the supervision to a certain degree and brought about more freedom.

TrueUSD tries to reduce risks by increasing the transparency of regulation, isolate teams and money through trusteeship, and maintain compliance by adding KYC (Customer Background Check) and AML (AML Review). The user’s single transaction is reviewed to reduce the risk. The advantage of TrueUSD is that it is open and transparent, but it also sacrifices a certain degree of freedom and adds extra costs. Of course, this pure environment also has the possibility of being contaminated, such as the funds from unknown sources trying to convert into TrueCoin whitewash.

The scheme for centralizing asset mortgages is very simple to implement. It can well solve the floating risk and seldom have huge fluctuations. However, it brings with it the risk of trust. It must be fully trusted that they will not be over-produced, spammed, and will not There is no black box operation when funds are diverted.

2. Encrypted asset mortgage

The general implementation of encrypted asset mortgages is that for every dollar of stable currency issued, assets that are deposited in N times other cryptocurrencies are used as collateral, which may be single or multiple assets of other mainstream tokens, when the user purchases At the time of the increase of collateral, the redemption of the collateral at the time of redemption.

Since the decentralized token itself does not have a trusted risk, this kind of stable currency can directly solve the trust problem, but it brings with it a floating risk. If there is a huge fluctuation in the market or a black swan event, the value of the collateral is seriously lower than the corresponding face value of the token, then it will explode. Taking DAI as an example, when the value of the collateral is lower than a certain liquidation value, it will be liquidated and the collateral will be used to buy back DAI from the market to pay off the debt. This has indeed happened in history, and during the period 2014–2016, bitCNY experienced a series of explosions.

Therefore, although encrypting asset collateral solves the trust risk, it brings with it floating risks.

3. Algorithm bank

The algorithm bank replaces the central bank with smart contracts. In reality, the central bank can maintain the relative stability of purchasing power by adjusting interest rates and liquidity, and the central bank also includes a large number of foreign exchange reserves as a weapon. The earliest use of the algorithm bank was Seignorage Shares. The basic idea is that the supply of tokens is flexible. When the supply exceeds demand, we will send less currency. When the supply exceeds demand, we will send more currencies to achieve control over their prices. the goal of.

However, the drawback of the algorithm bank is that it is based on the assumption that the future demand for the stable currency will grow. When stable currencies fall below the issue price, they need to attract people to buy, but this is based on bullish expectations. If the demand for stable currency shrinks or there is a crisis of trust, the algorithm bank will fall into a spiral of death. Therefore, the algorithm bank does not trust the risk, but there is still a floating risk. In summary, the current market does not have a stable currency to solve all problems.

However, there is now a new attempt to decentralize debt issuance. The centralization of asset mortgages has to be centralized due to the need for centralized institutions. However, if asset mortgages are replaced with debt collaterals, because debt is a small number of financial products that do not need to be managed and prices remain relatively stable, this can reduce both the trust risk and the floating risk.

Can we replace the USDT at this time? We can look forward to it.

Image via dailycrypto.io