What will happen to crypto when USDT collapses?
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Intro
The cryptocurrency markets are (in)famous for volatility. While the volatility is attractive for traders, it hinders the potential of cryptocurrencies from becoming a settlement unit, thus making them differ drastically from traditional fiat currencies. The cryptocurrency “industry” has responded by introducing a solution to the market — a stablecoin. A token which is a digital representation of fiat.
Stablecoins are kind of like the bank accounts of the crypto world, designed to serve as a store of value investors can turn to in times of market volatility.
Tether is the first truly successful and established stablecoin. It can also be argued that it is the most universally accepted crypto-asset, far outdoing the usual suspects — Bitcoin and Ethereum. Nothing really comes close to the ubiquity of USDT. There is almost no cryptocurrency exchange that does not list Tether among its main market pairs. Tether is not only listed on all exchanges, but it is also the dominant market by volume across the entire crypto scene.
Tether is a blockchain token, available on multiple blockchains, which is redeemable for USD in a 1:1 ratio. At least that’s the claim, and how Tether keeps the peg is beyond the scope of this article. What is important is that cryptocurrency scene accepts USDT at face value and treats it as dollar equivalent.
Tether was first launched in late 2014, as a token on Bitcoin (using Omni protocol). Since, Tether had issued tokens on Ethereum, Tron, and some other blockchain networks.
As indicated in the graph below, USDT began to gain serious traction near the beginning of the 2017 ICO boom and subsequent crypto bubble.
Tether was a powerhouse in terms of influence on the cryptocurrency scene in general already before the great crypto bust of 2018/2019. Things speed up after the bust and into 2020/2021 (the beginning of the new bubble) and Tether rises to dominance on the scene. In 2021 and 2022 USDT daily volume commonly exceeds $100B as Tether has established itself as the base token of the entire crypto…
