The End of Tether? Why A Structural Shift In The Market Spells Trouble For USDT
May 29 2023 - 4:30PM
NEWSBTC
Tether (USDT) is the largest stablecoin in the market, with a
market capitalization of over $86 billion as of May 2023. Despite
the concerns about the current state of the cryptocurrency market,
Tether has continued to dominate the stablecoin space, with its
supply growing significantly since the beginning of 2023. However,
there are signs that new competitors may challenge its dominance in
the future. Related Reading: Bitcoin Rally Hopes Still Alive, If
This Metric Is To Go By USDT’s Reign Over? According to the
researcher and founder of DeFiance Capital, ArthurOx, one factor
that may limit Tether’s growth is the emergence of new stablecoins.
As investors become more concerned about the risks associated with
Tether, they are likely to seek alternatives that offer greater
transparency and accountability. For example, USDC (USD Coin)
is a stablecoin fully backed by US dollars held in reserve by
regulated financial institutions, and its supply has been growing
rapidly in recent years. Another factor that may limit Tether’s
growth is the emergence of decentralized stablecoins. These
stablecoins are built on blockchain platforms, offering a
decentralized alternative to centralized stablecoins like
Tether. Decentralized stablecoins eliminate the need for a
central authority to manage the reserves, as the reserves are held
in smart contracts on the blockchain. This offers high transparency
and security and eliminates the risk of a central authority
mismanaging the reserves or engaging in fraudulent activities. One
example of a decentralized stablecoin is DAI, built on the Ethereum
blockchain. DAI is backed by a basket of cryptocurrencies held in
smart contracts on the blockchain. This ensures that the value of
DAI remains stable while offering high transparency and security.
In addition to these factors, there are also regulatory risks
associated with Tether. The stablecoin has come under scrutiny from
regulators in the US and other countries, with some calling for
greater transparency and oversight. If regulators impose stricter
regulations on Tether, this could limit its growth and open up
opportunities for other stablecoins to gain market share. Tether
And USDC Show Resilience Amid US Debt Ceiling Drama According to a
recent report by Kaiko, USDT and USDC have shown little volatility
amid the ongoing drama surrounding the US debt ceiling. Despite
concerns over a potential US default, USDT and USDC saw little to
no price movement over the past two weeks. This suggests that the
markets did not view default as the base case scenario and that
investors remained confident in the stability of these stablecoins.
Interestingly, USDT and USDC have increasingly been trading in
tandem during periods of market stress. For example, when Binance
temporarily halted withdrawals for Bitcoin (BTC) earlier this month
due to network congestion issues, both stablecoins rose above $1,
as seen in the chart above. This suggests that USDC may have gained
some safe-haven appeal as U.S. banking troubles eased. The
resilience of USDT and USDC during the debt ceiling drama reflects
a wider trend in the cryptocurrency market, where stablecoins have
become an increasingly popular way for investors to hedge against
volatility. Related Reading: Bearish Sentiment Hits EOS As Bulls
Lose Control, What Lies Ahead? These developments underscore the
growing importance of stablecoins in the cryptocurrency ecosystem.
As more investors seek to hedge against market volatility and
regulatory uncertainty, the demand for stablecoins will likely
grow. Moreover, the emergence of new decentralized finance (DeFi)
applications that require stablecoins as a means of exchange and
collateral is also fueling demand. Featured image from Unsplash,
chart from TradingView.com
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