Hey, hope you guys are doing well today, just wanted to make this Idea so that I could at least have under my belt that I witnessed the depeg 'albeit small' of USDT but also give some important insight on USDT and some facts your really gonna wanna know.
IMPORTANT READ
This also simply has me wondering some stuff about Stable coins as I'm sure many others are curious about. Are they really stable? or more Un-stable. Let's start off
Tether has noted that it has $81.3 Billion in assets as of May 12, 2022.
Here's an important note regarding their assets:
"According to Tether's official website, its stablecoins are backed with actual cash or its equivalents and short-term deposits. Only 6.3% of Tether's backing are digital assets marked as "other investments."
Basically a really big Hedge Fund
This is the important note to keep in mind versus Terra's UST which was backed largely by the foundation's Bitcoin reserves and Luna viewing the option as safer which of course as we know now wasn't. Terra was forced to sell BTC in it's bid to keep UST pegged to the dollar and avoid any more significant selling pressure but as it practically sold off it's BTC portfolio which it had at an average of $42,000 it not only lost significantly on selling that BTC at a much lower price as well as it's bid to sustain UST completely failing and losing those funds basically. This is why it's important to actually match up what your peg is with the cash or dollar equivalent. Terra Labs didn't have the luxury however to do that as it was still growing and didn't have funds anywhere close to what USDT has so likely why it chose the BTC route as it could open the path to not only prosperity in the future for those holdings but was relatively stable. That was the mistake which was made and why it's important that USDT is backed by actual money in accounts.
USDT's CEO has also stated that USDT has been ready for an event like this and is ready for all possibilities and routes that can happen, thus likely means they have more than enough capital for any de pegs that may happen and are ready with cash should anything happen. Now whether or not that's true is hard to tell but considering their assets again it's not really impossible. USDT has been ready for this whereas Terra Lab's simply wasn't. From all that's happened this past week it's become clear that Terra's founder Kwon Do was too naïve and failed to take into account a market getting virtually knocked out of the park and just the impact it would have on Luna/UST and how it's burning mechanism had a crucial fault that came into play at those low digits.
This is regarding Luna however is important to read if you want to understand the mechanism that helped led to it's failure.
UST/Luna's Mechanism
Luna is the token used to help UST meet its peg with the dollar. If the price of UST goes above a dollar, $1 of Luna can be burned and redeemed for 1 UST, a factor that helped push Luna’s price up during its epic rally earlier this year. Yet there’s a counterweight: if the price of UST falls the peg, traders can swap 1 UST for $1 worth of Luna.
During the week the value of UST fell way below its peg, trading at just $0.57 as of 8:05 a.m. ET on Thursday. As a result, rather than sell on the market, UST holders were trying to cash out through Luna, using the mechanism designed to keep the peg in place. When this happens, more Luna is minted in response to the amount of UST being burned.
When Luna’s price was much higher, say $100, if you redeemed 1 UST for $1 worth of Luna, you would only get 0.01 LUNA. As a result, such swaps wouldn’t have increased Luna’s supply by very much.
Yet now Luna’s price is much lower and large holders are cashing out, it’s causing a big increase in Luna’s supply. At Luna’s current price of $0.10, swapping 1 UST gets you 10 LUNA. So if someone wants to swap a large amount, say 100,000 UST, that would lead to the minting of 1 million LUNA.
This created a domino effect, downward spiral as holders tried to redeem UST for luna increasing Luna's supply significantly. To put things into perspective for the last few weeks Terra's supply was only about 340,000. Today that number is 6.5 trillion.
Terra tied it's UST backing to two volatile assets with one (BTC) being dumped by whales this week and Luna's fatal Mechanism flaw contributing to it's failure and losing it's value thus making Terra's UST Luna Reserves virtually worthless overnight.
This is a lot I understand but it's important to understand today's mistakes so you avoid any more future mistakes. If you make an investment into something, always check out it's Mechanisms, as well as how the foundation runs things and it's backings. Those will tell you a significant amount and could potentially expose a flaw which many d have been pointing out regarding Luna as recently as only a few weeks ago.
USDT is stable in my opinion as long as they don't overexpose themselves to the market with their investments and they stick to their promise of keeping their USDT backed with the real cash/monetary equivalent in bank accounts.
Thank you for tuning in today and have a great day! Please be sure to leave a like or follow and leave any comments below, I always love hearing what you guys have to say and I'm not perfect but you'll always get that 123% from me so without further a due keep well and have a great Sunday! It's absolutely beautiful outside.
~ Rock
IMPORTANT READ
This also simply has me wondering some stuff about Stable coins as I'm sure many others are curious about. Are they really stable? or more Un-stable. Let's start off
Tether has noted that it has $81.3 Billion in assets as of May 12, 2022.
Here's an important note regarding their assets:
"According to Tether's official website, its stablecoins are backed with actual cash or its equivalents and short-term deposits. Only 6.3% of Tether's backing are digital assets marked as "other investments."
Basically a really big Hedge Fund
- That's not too bad to hear however it does bring up a lot of questions of what their other investments could be, no doubt they've been impacted by the market's plunge this year but they seem to have enough cash/liquidity to not fret. Though I did want to point something out, it seems a lot of investors didn't realize but USDT is essentially a hedge fund. Just a really big one just like a bank. They take your money that you have in savings or you keep with them, and they offer you a measly or barely non-existent annual return rate. All the while using your money for their personal investments and gain, USDT does the same and is essentially a big hedge fund that uses user's funds to manage their own investments and strategies.
- It's isn't necessarily a negative factor that USDT is a hedge fund which is understandable considering how much assets it holds however I'm very curious just what investments they've got underneath their belts and just how exposed they are to things. I don't think it's too bad considering they've managed to stay afloat following the de-peg and fall of Terra/UST this week and allowed users to sell their USDT at the normal $1 even as the price had de pegged spending $300Million + in cost alone for users that decided to sell their USDT.
- Also aside from Terra's UST, USDT according to the company is backed 1:1 by cash or It is a cryptocurrency pegged to the US dollar. The stable coin is pegged to the USD by maintaining a sum of commercial paper, fiduciary deposits, cash, reserve repo notes, and treasury bills in reserves that is equal in USD value to the number of USDT in circulation. Basically
This is the important note to keep in mind versus Terra's UST which was backed largely by the foundation's Bitcoin reserves and Luna viewing the option as safer which of course as we know now wasn't. Terra was forced to sell BTC in it's bid to keep UST pegged to the dollar and avoid any more significant selling pressure but as it practically sold off it's BTC portfolio which it had at an average of $42,000 it not only lost significantly on selling that BTC at a much lower price as well as it's bid to sustain UST completely failing and losing those funds basically. This is why it's important to actually match up what your peg is with the cash or dollar equivalent. Terra Labs didn't have the luxury however to do that as it was still growing and didn't have funds anywhere close to what USDT has so likely why it chose the BTC route as it could open the path to not only prosperity in the future for those holdings but was relatively stable. That was the mistake which was made and why it's important that USDT is backed by actual money in accounts.
USDT's CEO has also stated that USDT has been ready for an event like this and is ready for all possibilities and routes that can happen, thus likely means they have more than enough capital for any de pegs that may happen and are ready with cash should anything happen. Now whether or not that's true is hard to tell but considering their assets again it's not really impossible. USDT has been ready for this whereas Terra Lab's simply wasn't. From all that's happened this past week it's become clear that Terra's founder Kwon Do was too naïve and failed to take into account a market getting virtually knocked out of the park and just the impact it would have on Luna/UST and how it's burning mechanism had a crucial fault that came into play at those low digits.
This is regarding Luna however is important to read if you want to understand the mechanism that helped led to it's failure.
UST/Luna's Mechanism
Luna is the token used to help UST meet its peg with the dollar. If the price of UST goes above a dollar, $1 of Luna can be burned and redeemed for 1 UST, a factor that helped push Luna’s price up during its epic rally earlier this year. Yet there’s a counterweight: if the price of UST falls the peg, traders can swap 1 UST for $1 worth of Luna.
During the week the value of UST fell way below its peg, trading at just $0.57 as of 8:05 a.m. ET on Thursday. As a result, rather than sell on the market, UST holders were trying to cash out through Luna, using the mechanism designed to keep the peg in place. When this happens, more Luna is minted in response to the amount of UST being burned.
When Luna’s price was much higher, say $100, if you redeemed 1 UST for $1 worth of Luna, you would only get 0.01 LUNA. As a result, such swaps wouldn’t have increased Luna’s supply by very much.
Yet now Luna’s price is much lower and large holders are cashing out, it’s causing a big increase in Luna’s supply. At Luna’s current price of $0.10, swapping 1 UST gets you 10 LUNA. So if someone wants to swap a large amount, say 100,000 UST, that would lead to the minting of 1 million LUNA.
This created a domino effect, downward spiral as holders tried to redeem UST for luna increasing Luna's supply significantly. To put things into perspective for the last few weeks Terra's supply was only about 340,000. Today that number is 6.5 trillion.
Terra tied it's UST backing to two volatile assets with one (BTC) being dumped by whales this week and Luna's fatal Mechanism flaw contributing to it's failure and losing it's value thus making Terra's UST Luna Reserves virtually worthless overnight.
This is a lot I understand but it's important to understand today's mistakes so you avoid any more future mistakes. If you make an investment into something, always check out it's Mechanisms, as well as how the foundation runs things and it's backings. Those will tell you a significant amount and could potentially expose a flaw which many d have been pointing out regarding Luna as recently as only a few weeks ago.
USDT is stable in my opinion as long as they don't overexpose themselves to the market with their investments and they stick to their promise of keeping their USDT backed with the real cash/monetary equivalent in bank accounts.
Thank you for tuning in today and have a great day! Please be sure to leave a like or follow and leave any comments below, I always love hearing what you guys have to say and I'm not perfect but you'll always get that 123% from me so without further a due keep well and have a great Sunday! It's absolutely beautiful outside.
~ Rock