The Billion Riddle Behind the Stablecoin

The Billion Riddle Behind The Stablecoin
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The so-called stablecoin Tether is highly controversial; hardly any tiny investors invest in the coin. Yet, despite this, over $80 billion worth of Tether is traded every day. Why?

A stable cryptocurrency? Isn’t that a contradiction in terms? After all, cryptocurrencies such as Bitcoin are considered particularly susceptible to fluctuations and are only suitable for investors willing to take risks.

The cryptocurrency Tether is a stablecoin; its value should be linked to the dollar and covered by securities.

Like Bitcoin or Ether, Tether is based on a cryptographically encrypted code and a decentralized data protocol, the blockchain. Tether is a stablecoin: unlike other cryptocurrencies, they are supposed to be stable because their value is tied to a common currency, here: the dollar. A tether should always cost one dollar.

There are so-called stablecoins whose price does not fluctuate at all. Stablecoins value is tied to a currency, in most cases, the dollar. For example, the Tether is the largest stablecoin by market capitalization. Its price is stable at one dollar.

Tethers are now worth $73.8 billion on the market. But, according to the company Tether Limited, which is behind the cryptocurrency, every coin is covered by its reserves.

The daily trading volume of Tether

Nevertheless, the market capitalization of Tether (USDT) is steadily increasing. Moreover, compared to smaller stablecoins, Tether’s daily trading volume is extremely high. For example, in the past 24 hours alone (as of November 17), $87.3 billion worth of Tether has been traded. For comparison: let’s take Bitcoin, the largest cryptocurrency with a market capitalization of $1.1 trillion, traded only $40.5 billion worth of coins.

Tethers, in particular, change their owners particularly frequently. Why are coins so crucial for trading in the crypto markets?

Stablecoins are considered a kind of market lubricant. The evaluation of 24-hour data by the analysis portal from mid-November shows: In these 24 hours, Bitcoin worth traders paid 2.6 billion dollars for Tether. On the other hand, Dollars only bought coins for $283.6 million. A large part of all Bitcoin is paid with Tether every day.

Stablecoins are exchange currencies that more prominent investors use to invest in cryptocurrencies. Because the coins are tied to the dollar, they do not fluctuate much; on the other hand, cryptocurrencies such as Bitcoin and Ether fluctuate a lot. In addition, they deliver a specific grade of protection. For more detailed information you can check this website.

The usability of stablecoins to investors:

The Usability Of Stablecoins To Investors

Investors, therefore, also use them, for example, to quickly park their capital in the event of a sudden price slump. If the prices for Bitcoin and Co. rise again, A user can quickly convert Tether into other coins. Because – and here is another advantage: Most crypto exchanges accept the purchase of Bitcoin with Tether, the transactions work comparatively quickly. Depositing real dollars at a crypto exchange, on the other hand, can take several days in case of doubt.

Stablecoins combines the advantages of cryptocurrencies – decentralized and available at any time – with price stability, which crypto coins usually do not offer.

However, very few tiny investors will use Tether if they ultimately want to invest in Bitcoin. The crypto portal Protos recently analyzed who are those who essentially use Tether. The result: Around 55 percent of all coins are held by the two major crypto traders, Alameda Research and Cumberland. Both companies acquired most of them in 2021. Alameda says it manages over $1 billion worth of digital assets and trades up to $10 billion worth of coins per day.

Cumberland has also been trading in cryptocurrencies since 2014 and buys them primarily for wealthy investors and financial institutions. According to Protos, Cumberland is one of the leading trading partners of the controversial crypto exchange Binance. With Tether, Cumberland is one of the most important sources of liquidity for Binance.

Overall, the so-called market makers hold around 90 percent of all ropes. Only two percent are assigned to private investors. One of them, according to Protos, is Christopher Harbone, who made international headlines for donating $19 million to the Brexit lobby group Reform UK. One of the most significant funds is Three Arrows Capital, a Singapore and the British Virgin Islands fund.

Meta’s stablecoin Diem – formerly Libra – is said to be on the verge of extinction.

Facebook planned to launch its stable cryptocurrency in 2019. However, the project quickly met with headwinds and will probably be finally completed.

Mark Zuckerberg’s attempts to launch his stable cryptocurrency (stablecoin) called Diem have reportedly failed. The Diem Association allows for selling its belongings to return capital to its investors, business news outlet Bloomberg reports. The project is about to end due to regulatory pressure. It was launched in 2019 under the name Libra.

The concentration of power for meta

It had long been apparent that Diem had gotten into tricky waters. Regulators around the world feared, among other things, that combining a stablecoin developer with a big company like Meta, formerly Facebook, could lead to an excessive concentration of economic power. However, the US Federal Reserve (FED) ‘s continued resistance is said to have forced the latest decision.

Most recently, one of the key figures in the project had left Diem. Former PayPal boss David Marcus, who was to play a vital role in developing the currency, announced in late November 2021 that he would be leaving the company.

According to Bloomberg, Diem is now trying to repay the capital and find new employers for the engineers on the project. The young company is therefore wound up. Meta owns about a third, people familiar with the matter explain, with the remainder owned by other investors.

Adjustment difficulties

Facebook had to make significant changes to its Libra/Diem project from the start, and well-known allies such as Mastercard, Visa, eBay, PayPal, and the payment service provider Stripe jumped out again in autumn 2019.

Diem should then only be linked to the US dollar and initially concentrate on the national US market. Silvergate Bank’s subsidiary would have issued the stablecoin according to the latest plans.

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