What’s going on with Tether?

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This week, the crypto market again ignored bad press for one of its most critical service providers. The issuers of stablecoin tether (USDT) are said to be in the crosshairs of the US Department of Justice for misleading banks about the nature of their activities.

This is not really news and the market’s non-reaction was predictable. What’s interesting is something that has been going on since the end of May: Tether’s growth has completely stagnated.

Related: Bitcoin Price Over $ 41,000 After Longest Streak In 8 Years

The chart below shows the supply of tether and USD coins (USDC), the second largest stable coin in terms of supply. Since the end of May, the tether supply has been stuck at $ 64.3 billion. The two-month slump is remarkable for a currency that had tripled between January 1 and May 31.

Tether has long been dogged by claims that it is not backed by real dollars – that its issuers are raising the price of cryptocurrencies by using units of tether issued from scratch. Obviously, traders either don’t believe it or don’t care: Tether has largely maintained its peg in the dollar, even though its finances may be questionable.

Crypto trading involves a certain degree of comfort with risk. Guess no one goes to the Bellagio’s cashier window and demands to see their balance statements verified, either.

Still, the issue of Tether’s creditworthiness is of systemic importance. Tether and other stablecoins act like money market funds in the crypto markets. Tether is mainly used in offshore sites like Binance. The difference between these offshore exchanges and a casino is that the price discovery is done on these sites.

Related: Market Wrap: Bitcoin Hits Two-Month High After End-of-Day Rise

The story continues

Tether could be part of a market collapse scenario, in which a sudden flood of discounted ties causes the price of bitcoin or other liquid crypto assets to plummet. He’s unlikely to have the kind of systemic impact that has fallen out of the race on Lehman Bros. ‘ money market fund, the Reserve Primary Fund, in 2008. This event precipitated a rush on all money market funds.

Tether is different from stablecoins like USDC that are audited, and it goes beyond the difference between one money market fund and another. Even though its growth slowed down and then stagnated, USDC’s growth continued, as shown in the graph below.

This is not due to some sort of escape from the tether to the relative safety of a more regulated stablecoin, as evidenced by the tether maintaining its supply of $ 64.3 billion. It is more likely to be the influx of new investors who are unable, or unwilling, to trade hard or trade on offshore exchanges. This would include professionals and institutions, especially those with fiduciary responsibility for investor funds.

This highlights the difference between tether and USDC: they are not two flavors of the same thing. One is audited for individual support, the other is not. As such, these are different types of products, used by different users in different places. It wouldn’t be smart to assume that a crisis of confidence among offshore traders using tether would spread to other stablecoins. In this light, the tie may not be systemically important in the same way as the Lehman Bros. money market fund. was. But the risk of a home crash is a systemic risk underlying any investment in crypto assets.

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