Is the USDT a sword of Damocles hanging over the coin?

The latest research report of the currency security shows that only one year ago, the stable currency transaction volume was less than 10% of the total transaction volume of the encrypted assets. Today, the stable currency transaction volume accounts for more than 30% of the total transaction volume of the encryption asset industry. Currently, encrypted asset trading pairs are no longer dominated by bitcoin. As of March 2019, most of the large-capacity crypto assets were traded directly with stable currencies (USDT is the most popular).

Above – Increase in trading volume: contribution of stable currency trading volume to total trade volume

The above chart shows the trading volume of NEO on the currency security trading platform on February 28, 2018 and February 28, 2019. The proportion of stable currency trading volume increased from 45% to 66%, replacing the transaction volume of ETH and BTC transactions. The dominant position.

In the world of encryption, stable currencies play an increasingly important role. It is especially important to ensure the stability of the stable currency value.

The best currency is a currency with stable value

What kind of currency is the best? Undoubtedly a currency with stable value. How to maintain the stability of monetary value is a problem that has plagued economists for centuries.

The initial solution was the gold standard, and the currency of the issue was linked to gold. The first to be linked was the pound. From gold to guarantee the value of money, users can go to the bank to convert the currency into gold. In a sense, the currency at this time is only the name of a certain weight of gold, and its essence is gold. For example, "dollar" is defined as 1/20 of 1 ounce of gold. Later, this convertible currency evolved into a non-convertible currency, and users could no longer go to the bank to exchange gold.

At some point in time, the wealth of society should correspond to the amount of money. With the increase in social wealth, the value of money will rise when the amount of money remains the same. When the rise in gold production cannot keep up with the increase in social wealth, the monetary system based on the gold standard will face a collapse. After the collapse of the Bretton Woods system, the United States linked the dollar to oil and finally collapsed again. This also shows that monetary solutions based on physical assets are difficult to succeed.

After leaving the gold standard, the currency becomes the credit currency endorsed by the issuing institution, and the central banks provide endorsement of the value of the issued currency. The credit currency is facing a long-term over-promotion, which is the risk of long-term depreciation.

The distribution rights of money are monopolized by the government. The consequences are excessive currency, currency depreciation, inflation, and then economic crisis.

Studies have shown that after the disintegration of the Bretton Woods system, the economic crisis in recent decades has been closely related to the instability of monetary value. Therefore, in recent years, the gold standard has once again been mentioned by economists. Hayek’s solution to this is the non-stateization of money.

Encrypted world's stable currency

The above briefly describes the importance of the stability of the value of the currency. For cryptocurrencies, it is also important to encrypt the stable currency of the world to maintain value stability.

We assume that all current stable currencies are used to encrypt the world, so the total market value of the entire digital monetary system should correspond to the number of stable coins.

According to Fisher's formula, MV = PY, M is the average number of currencies in a certain period of time, V is the velocity of money circulation; P is the weighted average of the prices of various commodities; Y is the number of transactions of various commodities.

Assuming that the velocity of money is constant and PY is the total market value of all currencies, it can be concluded that the amount of stable currency is highly correlated with the total market value of the encryption market.

According to the formula, an increase in the supply of stable coins will lead to an increase in the cryptocurrency market. Stabilizing the market value of the currency and stabilizing the exchange rate of the currency are an important reference indicator for the market.

There have been reports that Bitcoin price volatility is highly correlated with USDT overshoot. This also explains from one side why the market value of USDT is rising and the digital currency market will rise as a whole.

Sword of Damocles

Let's talk about USDT, a decentralized digital currency issued by Tether, which is implemented in US dollars.

Initially, Tether strictly adhered to the 1:1 reserve, and each time a token was issued, its bank account would have a $1 capital guarantee, so the USDT price was relatively stable.

But at the beginning of this year, Tether officially canceled the original 100% deposit system and changed it to a partial reserve system, but still claimed that each USDT has 100% asset reserve support.

Due to the first-mover advantage, USDT has long occupied the market share of 90% in the encryption market. Even if the current stable currency market is competitive, USDT still accounts for more than 70% of the market.

Tether's opacity and possible motives have made many people think that Tether has the suspicion of manipulating the currency. Li Xiaolai said that in the bull market, the USDT overshoot is a key reason.

John Griffin, a professor of finance at the University of Texas, said that from the link between BTC price movements and the USDT issue, Tether does have the motivation to manipulate the market.

Bitfinex'ed, a Twitter user who has long monitored Bitfinex, especially Tether's funding trends, claims that Tether started its issuance of the issuance plan on April 8, 2019, and the total USDT circulation surged 417 million on the day. On April 1st, the market value of Tether remained at around $2 billion, but it continued to rise in the next few days. It has exceeded $2.4 billion on the 13th and is still climbing. During this period, BTC prices skyrocketed and successfully stood at $5,000.

The USDT is constantly increasing, and the BTC price continues to soar. It is not difficult to understand the market's doubts about Tether's manipulation of the market.

Although the Coin CEO stated in the email, "Bitfinex and Tether have not participated in the manipulation of the market or the currency price. The additional USDT cannot be used to raise the price of other currencies on the BTC or Bitfinex platform." Another shareholder of the coin East also came out to clarify.

However, the manipulation of the USDT issue can provide huge economic benefits, which provides a motive for evil. From an early age, Marx told us that capital is sinful. You said that Tether can't be evil. It's like throwing a bone in front of a dog and saying that it is impossible for a dog to go to the bone. Of course, this is just an analogy, not a curse.

At present, the issue of USDT is no longer a problem for a Tether company, it is a problem for all exchanges that use USDT. For the user, I use the USDT provided by the exchange to enter the currency circle, and the exchange is responsible for the USDT. If Tether cannot accept, should the exchange be responsible for the acceptance? Tether, the exchange is already a grasshopper on a rope. From this perspective, users should be thankful that at least the exchange has endorsed you. As an exchange, you can't always like CZ, just take it and get it!

Tether will not explode, I don't know, but I think this possibility is very big, this is a sword of Damocles, the market's concerns are everywhere.