Why Tether is of central importance for the global cryptocurrency market

The drop in price of Tether has tightened the tensions on the nervous cryptocurrency markets and underlined the central role of the stable coin in daily trade in digital assets such as Bitcoin.

While one to one is supposed to be linked to the US dollar, Tether was traded to 95.11 cents on Thursday before it regained part of its serenity when the markets calmed down on social media.

The fainting of Tether increased the pressure on a cryptocurrency market that faltered from a decline in value of terrausd, a much smaller stable coin.

Here is a guide why Tether plays such an important role in the cryptom market and what could happen if it doesn't work properly.

What is a stablecoin and why is tether important?

stablecoins are a kind of cryptocurrency bound to other assets to reduce their volatility and play a decisive intermediary between hard currencies such as the US dollar and the euro and digital tokens such as Bitcoin and ether. The use of regular dollars to buy crypto can be difficult for retailers, since the processing is slow and the price of currencies such as Bitcoin can change.

Instead,

dealers usually use traditional currencies to buy stable coins that are accepted on dozens of crypto exchanges. This enables dealers to buy and sell volatile digital assets faster.

tether has issued coins worth more than $ 80 billion for circulation and is therefore the largest stable coin on the digital market and a central source of liquidity for crypto economy.

The focus of his activity is the promise of the company that Tether one-to-one is linked to US dollars and that it is fully covered by its asset reserves such as US state bonds, short-term corporate debt and a relatively small amount.

Why is it so popular?

The market position of Tether with a 50 percent market share is well ahead of the second -placed USD Coindie, according to the cryptodata page Coingecko.

It is the oldest stable coin on the market and continues to dominate the use of stable coins, especially in markets outside the USA. USD Coindas 2018 was introduced as a more US-friendly option.

CIRCLE, the USD, operates coin with coinbase, has also increasingly focused on promoting its use for non-crypto money transfer purposes.

Like other stablecoins,

tether is also used on "earnings platforms" that give digital brands at a higher price than they offer to the customer.

tether has also found a certain use of offline as a dollar alternative outside of the USA, where access to the real thing is more limited. In December, Myanmar's opposition government of national unity announced that she recognized Tether as an official currency.

Why is Tether controversial?

critics have often questioned Tether's certificates that his tokens are fully covered by assets.

The New York Attorney General and the US derivative supervisory authority Commodity Futures Trading Commission have the company together with a fine of almost 60 million

After his agreement with New York officials, Tether began publishing financial data that showed a breakdown of his reserves. In December there is still almost a quarter in Commercial Paper, a form of short -term liabilities. Tether has not disclosed the identity or origin of the issuers of the trading papers, apart from the fact that some of his stocks are international.

What happens if Tether loses his bond with the dollar for a long time?

Although stable coins are marketed as stable, they fluctuate constantly in practice. A report by JPmorgan from July last year showed that the four largest stable coins had been between 30 and 40 percent below the nominal value in the previous three months.

These fluctuations are tend to be relatively low. If Tether loses his one-to-one binding to the US dollar for a long period of time, this could have destabilizing effects on the cryptoma market.

crypto dealers who keep large reserves in Tether would find that their participation is less worth, which could force them to sell others and trigger a rush to demand dollars in exchange for their devoted tether coins.

When people hurried to redeem their Tether for dollars, the supporters of the stable coins would have to sell the traditional assets that they supposedly have to pay them. The flood of sales could disturb large traditional markets, for example for short -term corporate bonds or government bonds.

central bankers around the world are concerned that the effects of a collapse of a stable coin could spread to the traditional financial markets. At the beginning of this week, US Finance Minister Janet Yellen warned that the falling value of Terra shows that stable coins are "a rapidly growing product and rapidly growing risks".