Consultant with Bankless Consulting and Tokenomics DAO. Writer and Researcher for Web 3. Crypto Class of 2016
Consultant with Bankless Consulting and Tokenomics DAO. Writer and Researcher for Web 3. Crypto Class of 2016
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Written by Shaun Geer and Joe_King
Type of Stable Coin: Fiat Backed
Who’s behind the project: Bitfinex, through its child company Tether Limited.
Reserve / Peg Mechanism: Tether has always been a bit opaque about its collateralization, and has been sued by the New York Attorney General because of incomplete collateralization in the past. There is also reason to suspect that in the past collateral for both Bitfinex (the exchange) and Tether have been double counted, that is, one dollar of asset was put on the books for both platforms. As of March 31st, Tether is collateralized by 83.74% cash equivalents, 5.27% secured loans, 4.61% corporate bonds and precious metals, and 6.38% in other investments, including digital currencies. The cash is further broken up into 36.68% commercial paper,4.55% Money market funds, 6.36% Fiduciary Deposits, 6.36% Cash, and 52.41% Treasury Bills. The Commercial paper is unspecified as to the issuer. This collateralization has been broadly criticized by financial experts, and is considered by many to be insufficient in both liquidity and security.
Reserve Assets / Mix:
Where can it be used: Tether, being the very first stablecoin, can be used almost everywhere on all chains. Because of its questionable collateralization, some defi protocols such as Aave have isolated it from being used as collateral in lending, so as to prevent systemic damage to the Defi ecosystem.
Places to borrow or lend: The great majority of lending platforms incorporate USDT in some way. Note that often USDT can not be used as collateral, to protect a protocol from de-pegging due to insufficient liquidity or collateralization. Historically, lending to an AMM’s liquidity pool using tether has achieved higher yields than lending it directly. For lending or borrowing as a single asset, Aave, Nexo, and compound are all common choices.
Closing Comments: Tether is the largest stablecoin by market cap, and also the first stablecoin in existence. It can be used in most places that one would expect to be able to use a stablecoin, simply because of its age. However, the nature of its collateralization is a risk that many experts suggest may cause the stablecoin to depeg, however it has survived multiple bear markets and volatile conditions showing it’s versatility and tenacity. The investor should be aware of this inherit risk the use of USDT or when dealing with protocols that use USDT, as its de-pegging could cause systemic effects within the defi ecosystem.
Written by Shaun Geer and Joe_King
Type of Stable Coin: Fiat Backed
Who’s behind the project: Bitfinex, through its child company Tether Limited.
Reserve / Peg Mechanism: Tether has always been a bit opaque about its collateralization, and has been sued by the New York Attorney General because of incomplete collateralization in the past. There is also reason to suspect that in the past collateral for both Bitfinex (the exchange) and Tether have been double counted, that is, one dollar of asset was put on the books for both platforms. As of March 31st, Tether is collateralized by 83.74% cash equivalents, 5.27% secured loans, 4.61% corporate bonds and precious metals, and 6.38% in other investments, including digital currencies. The cash is further broken up into 36.68% commercial paper,4.55% Money market funds, 6.36% Fiduciary Deposits, 6.36% Cash, and 52.41% Treasury Bills. The Commercial paper is unspecified as to the issuer. This collateralization has been broadly criticized by financial experts, and is considered by many to be insufficient in both liquidity and security.
Reserve Assets / Mix:
Where can it be used: Tether, being the very first stablecoin, can be used almost everywhere on all chains. Because of its questionable collateralization, some defi protocols such as Aave have isolated it from being used as collateral in lending, so as to prevent systemic damage to the Defi ecosystem.
Places to borrow or lend: The great majority of lending platforms incorporate USDT in some way. Note that often USDT can not be used as collateral, to protect a protocol from de-pegging due to insufficient liquidity or collateralization. Historically, lending to an AMM’s liquidity pool using tether has achieved higher yields than lending it directly. For lending or borrowing as a single asset, Aave, Nexo, and compound are all common choices.
Closing Comments: Tether is the largest stablecoin by market cap, and also the first stablecoin in existence. It can be used in most places that one would expect to be able to use a stablecoin, simply because of its age. However, the nature of its collateralization is a risk that many experts suggest may cause the stablecoin to depeg, however it has survived multiple bear markets and volatile conditions showing it’s versatility and tenacity. The investor should be aware of this inherit risk the use of USDT or when dealing with protocols that use USDT, as its de-pegging could cause systemic effects within the defi ecosystem.
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