In the last few weeks, we’ve heard reports that Tether (#1 stablecoin in crypto), has been defrauding people. There are links to say that:
- Tether’s growth isn’t organic and is essentially printing money
- Tether doesn’t actually hold all the reserve fiat U.S. dollars it says it does
What’s alarming with these two acquisitions is that Tether has a market cap of over $2 billion dollars and even more alarming, it’s 24-hour trading volume is $2.4 billion dollars. With so much supposed U.S. dollars moving, I thought it would be good to do a brief overview of Stablecoins.
Stablecoins were created to reduce volatility in the crypto trading space. Thought of as a place to temporarily park your money when you don’t want to leave your positions in fickle coins. There are three different categories of stablecoins, Collateral backed-IOUs, Collateral backed-on-chain, and Seigniorage share coins. They are typically pegged to a fiat currency (US dollar) or a crypto asset.
Collateral backed-IOUs are backed by fiat or traditional asset reserves. Collateral-backed-on-chain is backed by crypto assets. Seigniorage share coins algorithmically expand and contract the supply of the currency similarly to what a bank does for fiat.
