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- Every Tether token is backed by a fiat currency.
- A crypto winter has gripped the industry since late last year.
- Stablecoins are the most meaningful asset this industry has offered.
While the crypto industry was undergoing a storm in early November, cryptocurrency exchange had some good news to share with the community: its users will be able to deposit and withdraw Tether from the exchange with the exchange’s basic subscription. Bitfinex is known for its low trading fees (0.2%).
Notably, Tether and Bitcoin can actually be used to buy everyday commodities in Lugano, a city in Switzerland.
Stablecoins are cryptos that are linked to a commodity or another currency – fiat or crypto. Obviously, the commodity is a relatively stable financial asset. Tether is the world’s first stablecoin and is the ‘most widely traded’ according to the coin’s website.
Real reason why markets are shifting away from cryptos
Tether’s trading volume is equal to 85% of Bitcoin’s trading volume – a fact that speaks volumes about the significance of this asset in this market.
The present fall in prices is merely an emotional reaction to recent events. FTX collapsed earlier this month and BlockFi, a crypto lender filed for bankruptcy today because of its exposure to FTX. The war in Ukraine and energy prices will invariably keep supply low. FTX was not clean. But clean companies like Compute North had to shut shop because of high costs. Essentially, the market is facing a supply crunch.
The Federal Reserve has hinted that the rate hike cycle will be decelerated and that the economy is becoming more resilient, if not better.
Why stablecoins are the most meaningful asset Blockchain has offered so far
Currencies like the US Dollar and the Chinese Yuan are trusted because they can be used as a medium of exchange. This function is one of three basic functions of any currency. The other two are that the currency can be used as a store of value and a unit of measure. While there is a lot of debate on how the other two functions will be enabled in crypto, Stablecoins have successfully offered the medium of exchange function.
Stablecoin is the only crypto that can facilitate the launch of crypto into mainstream usage, if not replace fiat currency. Think of it this way: CBDCs or Central Bank Digital Currencies are essentially digital versions of national currencies, right? That means, a CBDC derives value from the nation’s fiat currency – simply put, a CBDC is theoretically a stablecoin.
Stability is one of the main reasons people invest in stablecoins. This means that the coin’s reserves and liquidity for each coin must be maintained as accurately as possible perpetually. Naysayers point out that Bitcoin derives its price from “pure speculation.” On the other hand, Stablecoins derive value from the pegged asset like derivatives. The difference is that the onus of maintaining that peg rests with devs or algorithms and banks.
As long as companies like Tether Limited and Banks where the liquidity for stablecoins are stable and don’t mess up, Stablecoins are a fundamentally safe investment.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
