Tether admits that it is not 100% reserve, but the USDT price has not fallen. Why?

The "big show" between Bitfinex and the New York prosecutor is still in progress. After Bitfinex's $850 million frozen news broke, the panic exploded and the price of the USDT fell immediately, but then continued to rise, now returning to a positive premium. Even though Tether and Bitfinex General Counsel publicly acknowledged that USDT is not a 100% reserve, the USDT price has not fallen. So, what factors determine the stability of the stable currency?

WX20190505-145034@2x

According to Coinmarketcap data, since the encryption market has maintained a good upward trend since April, USDT has been at a premium. But on April 26, after the news broke out that the Office of the Attorney General of New York had frozen Bitfinex's $850 million in funds, the panic immediately broke out, and the USDT immediately plunged from $1.01 to a negative premium of $0.9869. However, with the step-by-step development of the event, the USDT gradually recovered and returned to the positive premium on April 30.

WX20190505-111903@2x

Source: Coinmarketcap

On April 30th, Tether General Counsel admitted that only about 74% of USDT was supported by cash and equivalents. It is clear that USDT is no longer 100% supported by cash or liquid assets. However, the price of USDT did not fall. On May 1, the USDT price reached US$1.01 again, returning to the state before the incident. It seems that 100% of the reserves are not as big as the imagination of the stability of the stable currency.

So what is the factor that has a greater impact on the stability of the currency anchor price?

Dovey Wan, founding partner of Primitive Ventures, expressed his opinion on Twitter today and explained why the price of USDT has not plummeted. She believes that many people don't understand Tether's operating mechanism and confuse Crypto Capital's funds with Tether's bankability. Tether has a partnership with Deltec Bank, which is not involved in the allegations of the Attorney General of New York, so Tether's remaining reserves are no problem so far.

Dovey said that even now (USDT is partially supported by the stock), for most of the large Tether brokers and OTC trading counters she is in contact with, the USDT exchange rate for US dollars is normal. Otherwise, what can USDT maintain to anchor the exchange rate? If there is no bank cooperation at all, and it is completely non-exchangeable, USDT has long been zero.

She believes that:

“The most important factor in keeping Tether anchored is the convertibility and liquidity, not the 100% reserve. For traders, this is a pure, profit-driven arbitrage game. That's why this time. The panic did not affect the price as it did last October."

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