I am also concerned about USDT failing (failing meaning it will be worth close to 0, not decoupling from the USD).
In short: If it fails, ETH, all other stablecoins and probably also BTC (because it is on Ethereum) are gonna crash like 90% or more.
Why: Because of a feature why DeFi works. Interoperability. If USDT goes to 0 it would drain like all Curve pools, all Uniswap or Sushi pool with a stablecoin and therefore also other stablecoins would loose their peg.
USDT cant fail and that is the reason why people say: “Dont put your live savings into crypto”, because there is a real chance that this all goes to 0.
Do I believe that it will go to 0? I am not sure, it is a risk and according to this risk you should choose your exposure to crypto.
Is there anything which supports Tether not going to 0?
- Maker risk assessment on USDT when they added it as collateral for DAI
- Tether Transparency Report shows their assets
- And the information we have from ongoing or past lawsuits:
In 2019 the New York Attorney General’s (“NYAG”) office filed a suit alleging that Bitfinex used Tether reserves to cover $850 million in lost customer funds. Bitfinex claimed that Crypto Capital, a financial services firm offering shadow banking services for several cryptocurrency businesses, defrauded Bitfinex out of the $850 million. Court filings revealed that, consequently, Tether only held $2.1 billion in cash and cash equivalent securities. This figure implied that each USDT was backed by only $0.74 instead of a full $1. In the weeks following the NYAG’s filing, Bitfinex conducted a $1 billion token sale for LEO, the proceeds of which, we presume, went to pay back the Tether reserves.
–> so I think they are really backed by USD. Because they had been and probably filled the gap they had up with the money from the LEO token sale. Whatever they did in the past, I think it is today much more profitable to offer the services Tether offers, than to Scam and bring this all to a crash. The people involved in Tether are probably themselves deep into crypto and wouldnt want it to fail anymore (even if when they started, they didnt know how big Tether would get).
In conclusion: In my opinion there are substantial risks. Everyone should position themselves accordingly. It is not a meme, if people say “Dont put in crypto more than you can afford to loose”, because there is the real risk to loose everything.
On the other hand, it is also an opportunity and there should be enough incentives on all sides, to not let Tether collapse, including regulators (unless they choose to be anti innovation and give this field over to other juristications, like China or Europe). Overall it would be good to deleverage the usage of USDT in the DeFi ecosystem overall and use more coins like USDC, PAX, DAI, sUSD or even some of the newm algo coins like ESD or DUSD to decrease overall risk.