It’s pretty apparent now, and has been for a while, that we have a stablecoin problem. And that stablecoin is Tether, the biggest stablecoin in circulation with a market cap of over 62 Billion USD as of writing this post, which puts its market cap at the 3rd largest coin in the whole ecosystem.
The issue is that, Tether is registered in the Cayman Islands, notoriously known for its history of shady business and money laundering. Basically, nothing trustworthy comes out of there. Tether is no different.
Despite being the largest stablecoin in circulation, massive amounts of evidence points to the fact that they are not backed by the USD on a 1:1 ratio. (some instances suggest that only 3% is backed by USD, and some sources suggest even less!)
Sounds grim. But when you really look at it, the total amount of money “printed” by Tether is equal to the total market cap of Tether, which is around 62 Billion. A lot, but not too much compared to the market cap of the whole crypto-space.
The question is: should we continue to allow a stablecoin that is not backed 1:1 to the USD to be able to still be printed?
Assuming that all the USDT in circulation was paid for by crypto-enthusiasts and investors alike, that makes the real value paid for 1 USDT to really be, 1 USD. But the money was paid for from an investor, and it’s not actually backed by 1:1 by the dollar, so, russian roulette when you claim it.
This sparks a problem that is getting too big to fail for USDT, is that, money is real. The amount of money in the crypto market is real, and people really paid 1 USD for that USDT, but the tower comes tumbling down to the ground if everyone were to claim it through the USDT foundry in large amounts. The facade of a reliable stablecoin can stumble to the largest crypto-scam in history overnight if this were to happen, and that’s definately not a good look for crypto.
The problem has to be resolved in a slow manner — gradually switch to a new stablecoin standard.
That’s easier said than done, as the second largest stablecoin (USDC) and the third largest stablecoin (BUSD) combined STILL have a lower trading volume that USDT alone. (I know, nuts!)
The problem has to be tackled systematically and consists of two main paths of action: drive adoption of a new stablecoin standard, and removing the power of the Tether foundry to create new “non-backed” stablecoins, essentially printing free money.
For the former, exchanges would have to adopt a new stablecoin standard and encourage that stablecoin as the new trading pair. Ideally, they would gradually move to remove USDT trading pairs out of their order books in order to begone with USDT’s manipulative power, but how to do this without significant impact to the crypto market as a whole? That’s a big topic for exchanges around the world, including DEXes to figure out.
The manipulative power of USDT
Why is USDT dangerous, and manipulative to the entire crypto market?
The easy answer is that: USDT is not backed by 1:1 USD, and the founders have a mint() function. If you dove a bit into DEFI programming, you would know that the mint() function allows issuing new tokens for that coin. In this case, USDT, which is not properly audited and can be minted on demand. A true recipe for disaster.
Theoretically, the founders could mint 1 trillion USDT, buy up all the liquidity of Bitcoin, commit the biggest exit scam in existence, and that’s entirely possible, because they are not properly audited and can mint USDT on demand.
So in order to limit Tether’s ability to do this, exchanges would have to remove all USDT pairs.
But what about the existing coins that are already in existence, and that people have already paid for?
Firstly, it’s important to accept the fact that, these coins have been essentially created out of thin air, and crypto investors have already been scammed out of [market_cap] of Tether, whatever that may be at what time.
When we do that, we can accept that 1 Tether in circulation = 1 USD (because people already paid for that Tether), but we would like to prevent new Tether for being issued to become 1 USD (essentially cutting the supply chain of Tether and pulling the curtains on the scam that is happening, a self-realizing scam that becomes a non-scam because someone paid for it)
In order to do this, please allow me to explain my proposal.
Create an ERC20 token called X (in this case, I will name it CUSD, or Crystallized USD) WITHOUT a mint() function.
Create a block reference that all functions look up to. (For example, block 250000)
Create a swapping service that allows users to swap X amount of USDT for 1:1 amount of CUSD, only if it was minted before the reference block, in this case, block 250000)
Establish CUSD as the new stablecoin token standard, and abolish USDT from the system.
This will create a new standard pair of CUSD/COIN instead of USDT/COIN, where CUSD = USDT, but only if it was minted before block 250000 (reference block), and this stablecoin can no longer be minted.
This will create a stable (in the case that no institutions accepts burning of this coin in exchange for true fiat) or decreasing liquidity for this coin (in the case that some institution accepts burning of this coin in exchange for true fiat), and will truly put a stop to USDT’s powerful manipulative grasp on the market by removing their power to mint any new tokens, as well as create the starting point for exchanges to gravitate towards a new stablecoin standard, with minimum damage done to the ecosystem as a whole.
Then, exchanges can do their thing, and bring up this new token standard and shift towards a more transparent stablecoin standard as a whole industry.
This solution is what I have thought of as the best-case solution to the USDT problem in crypto, which causes least damage to the ecosystem and investors.
We should initiate this plan before USDT gets even larger, to avoid the inevitable realization of the masses that USDT is not backed 1:1 to USD, (and the panic that follows).
What we need to do now is damage control, and we have to do it before it gets out of hand.
Edit: Addition, this video blows my mind why people are still using Tether.