This is the start of a series of articles analyzing the pros & cons of seven potential Tether competitors.
With the recent crypto-crash, the ongoing FUD surrounding the exchanges and Tether, the team decided that is worth researching potential competitors which would have to take its place, should a liquidity crisis occur. In this first part, we will deal with the problems that need to be solved by a stable-coin, the risks of Tether and how we will be conducting our analysis in the coming weeks.
The volatility problem
Cryptocurrencies are Тech markets that penetrate into different mainstream industries, promising disruption to established business models. Crypto is absent of any P/Ls, EPS or P/E ratios, and therefore, they do not have the traditional asset bull/bear phases. Essentially crypto is valued as either practical and adopted or impractical and abandoned. This novel and speedy valuation is the source of the market volatility – the only thing that defines the underlining value of a crypto-asset is its practical adoption and the number of users willing to pay for it.
Having said that, the majority of crypto-assets are traded on exchanges that are not licensed to accept Fiat, and thus the underlying asset is BTC. This creates a big problem for the participants on such exchanges – when both the base asset and the invested asset are subject to extreme volatility, there is practically no safe haven for the investor’s holdings. It is only natural that there is a need for a mainstream stable-coin, adopted across the crypto-exchanges which is pegged to a major currency such as Dollar or Euro.
The most notable, and “successful” stable-coin so far, is Tether. Tether, with its USDT sign, is claimed to be pegged to the value of the US Dollar, and so far, this has been the case with some historical exceptions.
[ENTER CHART FOR USDT/USD]
Tether Inc. says that each USDT should be backed by one actual US dollar. Thus, the core value proposition is that it provides a way to own, move and trade fiat without the need to convert crypto to USD. This means that investors have a vehicle which provides fast, cheap and secure transactions, yet the price of the currency is as stable as the one in US. All major crypto-exchanges have adopted USDT pairs to at least BTC & ETH, and these have turned into the so much needed safe-havens when BTC price crashes.
The Tether Trouble
Due to the huge amount of USDT recently issued (> 2 bn. USDT in circulation), people are starting to question its legitimacy. In essence if you have 2 bn. USDT you should equivalently have the same amount in Fiat reserves, which many doubt that Tether Inc. possesses. Currently, we don’t know where these large reserves of USD are stored or if they exist at all. In addition to that, many analysts believe that the printing of USDT is used to purchase BTC and thus generate artificial demand, pumping or dumping the price, essentially manipulating it at will.
With price manipulation in mind, and due to its huge circulating supply, Tether has become the “oil” which keeps non-fiat crypto exchanges working without the need for capital flight from exchange to exchange each time a crash occurs. Being at the foundation, a potential liquidity issue with USDT will not only crash the liquidity of the exchanges, but also hit BTC and altcoins alike.
In search of a substitute for Tether
All right, since going out of the crypto market is not an option for us, we will evaluate and scan for potential substitutes of USDT to assess their stablecoin viability. Our initial list of candidates includes:
During the next two weeks, we will go into detail of each token, and prepare standard & non-standard metrics which will include:
- Concept Overview – what it is, how it works, what is the core value proposition
- SWOT – strengths, weakness, opportunities, threats
- ICO data – date, roadmaps, funding, funds allocations
- Team: experience, advisors, education
- Media: shilling, advertising, notable publications
This will lead to the creation of a stablecoin index which will be based on all metrics to compare the offerings. Let us know if you think there are other competitors so the team can look into them as well. We would love to hear from you in the comments below.