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USDT supports “commercial paper” tether

By
Redakcja
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5 min reading

A new line of argument has risen regarding tether’s basket reserve assets, raising a valid question of whether or not stablecoins are that stable? Recently stablecoin markets have been seen thriving enormously but last week Eric Rosengren president of the Federal Reserve bank of Boston has appeared to show his concern through a warning. “there are many reasons to think that stablecoins at least, many of the stablecoins are not actually particularly stable,” he said as a point before the official monetary and financial institutions forum, according to him “a financial future crisis could easily be triggered as these become a more important sector of the financial market, unless we start regulating them.”

A new line of argument has risen regarding tether’s basket reserve assets, raising a valid question of whether or not stablecoins are that stable? Recently stablecoin markets have been seen thriving enormously but last week Eric Rosengren president of the Federal Reserve bank of Boston has appeared to show his concern through a warning. “there are many reasons to think that stablecoins at least, many of the stablecoins are not actually particularly stable,” he said as a point before the official monetary and financial institutions forum, according to him “a financial future crisis could easily be triggered as these become a more important sector of the financial market, unless we start regulating them.” 

In an additional slide presentation, the bank CEO added that Tether (USDT) which is known as the dominant stablecoin issuer seems like nothing but a basket of reserve assets which looks mostly like a “very risky prime fund” the kind which could get you into trouble in the last two recessions. Still not sure if it was the right move to question and call out tether by name for its reserve assets, which includes commercial paper, corporate bonds, secured loans and precious metals? Therefore, can the figurative growth of stablecoins truly destabilize short-term credit markets? Or can it be better handled with more tough reserving and auditing? 

Considering the fact that Tether is the most dominant player in the global stablecoin market, but what if it falters slightly, will it bring down the larger crypto market along with it? Francine McKenna, adjunct professor at American University’s Kogod school of business raised her concern. According to her these new stablecoin funds are, something called an “interloper” which after a sudden epiphany the Boston Fed president came to the realization that “suddenly we don’t have our fingers on all the levers.” Stablecoins are actually affecting the short-term credit prices at the moment, but this could easily leave the market. During mid-June, a sudden “rush” on the iron finance protocol, made the price of the IRON stablecoin to proceed peg and crush its native token, TITAN by almost 100% which heavily affected the investor Mark Cuban and others. 

Rohan Grey an assistant professor at Willamette University College of Law, said that if Tether falls down it would have crucial effects on the cryptoverse. “Tether is still one of the most widely traded asset pairs for almost every other crypto, and provides a huge amount of liquidity to the sector. So yes, a crash in Tether would have significant knock-on effects for the rest of the ecosystem.” There is circle and some other stablecoins who have started to accept market share from Tether, “So it’s definitely possible that some other stablecoin will step into the breach, but even without tether, the rest of the crypto industry remains built on a foundation of stablecoins,” he added. There has been a huge controversy following USDT through most of its short history and in February Tether and its Bitfinex came into agreement to pay the state of New York $18.5 million for giving a false idea of the degree to which USDT was backed by fiat collateral. 

“Tether’s claims that its virtual currency was fully backed by U.S dollars at all times was a lie,” said Letitia James New York State Attorney General while proclaiming the settlement, which will also require Tether and Bitfinex to submit important quarterly reports on USDT reserves which is explained in detail in Rosengren’s slide deck. The commercial paper accounted for half (49.6%) seemed a bit questionable. “The fact that Tether is holding so much corporate paper and corporate bonds is a huge issue,” said Grey. “No one knows what it is, and it’s completely at odds with their claims for years that they were only invested in cash or cash-like assets.” McKenna thinks “cash equivalent” has to be something like a “liquid with no market uncertainty,” 

“USDT has been a big question mark since its inception,” Sidharth Sogani, founder and CEO of Research firm Crebaco, told Coin telegraph. If tether tries to put their money in something other than U.S dollars, what will happen to those assets like precious metals or corporate bonds? “will USDT lose its value?” also how are earnings being distributed? Tethers users basically own the bonds and commodities for stablecoin, “so the interest earned is the users’ right,” said Sogani. Most people do not have any issue with Tether attached its token to a basket which has commercial paper in it. “To my mind there is nothing inherently wrong with a stablecoin USDT or not holding or being backed by commercial paper, as opposed to being 100% backed by a specific fiat currency,” Sean Stein Smith, assistant professor in the department of Economics and Business at Lehman college, told Cointelegraph. 

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