Tether is a stablecoin. To explain, a stablecoin is a cryptocurrency that contains a smart contract linked to a trust account.Read more
However, Stablecoins have a very odd characteristic. Interestingly, dollar-pegged stablecoins’ often trade for more than $1 on many cryptocurrency exchanges.
For instance, Tether’s (USDT) Coin Price was $1.01 on 4 March 2019. Meanwhile, USD Coin’s (USDC) Coin Price was $1.02 on the same day according to CoinMarketCap. Moreover, BancorX gave CarbonUSD (USD) a Coin Price of $1.02 on March 4, 2019.Read more
“When an investor focuses on short-term investments; he or she is observing the variability of the portfolio, not the returns – in short, being fooled by randomness.” – Nassim Nicholas Taleb.
Therefore stablecoins, like most cryptocurrencies are a purely speculative asset. Stablecoin speculators bet that these assets will work as advertised. If stablecoins fail the speculators will lose their money.
Thus, stablecoins are an inherently risky asset based on unproven technologies and business models. Thus only people who can afford to lose money should buy stablecoins.
Tether’s Coin Price raises serious questions about the whole concept of stablecoins. There is no direct conversion between Tether and the dollar.
Indeed, a person converting Tether (USDT) into greenbacks lost 1.22¢ on the transaction on 19 October 2018. That will convince many that conversion mechanisms like Uphold’s API are a better deal.
A logical conclusion is that the market prevents one-on-one conversion of Tether. To explain, Tether or exchanges have to buy dollars on the market for conversions. Hence, they have to pay the market rate for dollars.
Moreover, the exchange or Tether charged the market Coin Price for USDT. Under those circumstances, a one-on-one conversion of Tether is impossible.
Another conclusion we can make is that stablecoins are impossible. To explain, it is not possible to create a cryptocurrency with one-on-one conversion.
One-on-one conversion is impossible because Mr. Market controls the price. The only to change that is to keep altcoins off the market. That is impossible because anybody can sell cryptocurrency anytime.Read more