Is Tether/USDT Safe to Use? (2020/2021)
Tether is still the biggest USD-based stablecoin in the cryptocurrency space, but this doesn’t mean it’s necessarily safe to store, hold, or trade for many reasons we cover in this article.
Ultimately we’d say Tether is “good enough” as just like the real-life dollar it’s actual value and backing doesn’t matter – however we’d say if you have the option you should opt to use usdc or Dai for reasons we covered in this article — essentially they have better backing/collateral than USDT does and thus less risk.
Personally we opt to “take profits” into bitcoin or ethereum rather than these stablecoins as we don’t want to hold the bag that is fiat currency — but if that’s not your style and you want to to take profits into a USD-paired stablecoin we’d say you’d be better off opting for Dai or usdc instead of USDT.
Is USDT Secure?
In terms of technology USDT is completely secure — it’s a centralized token developed on the decentralized Ethereum blockchain that’s meant to be backed by 1 US dollar stored on Tether Ltd’s balance sheet in the form of cash in bank accounts and government bonds.
Nobody is going to reach into your Ethereum Wallet, or into the Exchange wallet and take USDT from you — However it is possible that Tether Ltd goes bankrupt or they otherwise lose the dollars deposited with them. It’s also possible that the dollar of course loses value while holding USDT and thus you losing much of your purchasing power quite quickly.
The Real Dangers of Using USDT
While USDT the coin is secure, the value of the US dollar is not secure or reliable anymore in our opinion — and more importantly USDT is not actually backed 1 to 1 with the US dollar anymore, but rather is on a fractional-reserve system where each tether is only 74% backed according to many sources, including folks who have apparently worked for the company that issues the token.
This means when the day of reckoning comes for the US dollar or simply Tether/Stablecoins it’ll be particularly bad for Tether/USDT, as it’s truly not even backed by 1 US dollar, but rather only 74% of a US dollar (74 cents).
Because of the above we’d say if you are going to be holding a stablecoin then you’d be better off opting to hold usdc as you can immediately convert if for USD on Coinbase, it’s definitely backed 1 to 1, and you can immediately buy crypto after converting it to real USD if needed in such an event where stablecoins or the US-dollar experiences issues of some variety.
Should You Hold Stablecoins at all?
This really depends on your assumptions and beliefs when it comes to the value of the US dollar in the coming years — as well as what you believe the crypto-markets will behave like in the coming years or months.
If you have a very bearish negative view on the US dollar, then you’d probably be better off just keeping funds in the big boy coins like Bitoin or Ethereum — this is what we personally do, when we have extra money that we aren’t going to be using, so long as Bitcoin didn’t just jump up 10% in a single day, we’ll market-buy some bitcoin, or Ethereum if it seems cheap compared to bitcoin, and hold that instead of fiat.
However, if you believe the US dollar isn’t going anywhere, and are more conservative when it comes to crypto-markets, then you may prefer to hold stablecoins.
Where Should You Hold Your Stablecoins?
If you’re planning on holding stablecoins for more than a few days then you might as well use a platform that offers interest on them — the one that offers the best interest rates on stablecoins is Celsius Network — they offer great sign-up bonuses/promotions that are quite easy to get
Ultimately if we held stablecoins we’d lend them out on a platform like the above (centralized) as they offer the best rates and the coins are already centralized and have little down-side risk for the borrowers, and thus are safe to keep on such platforms in our opinion, but if you aren’t comfortable with that there’s also decentralized protocols with decent rates, albeit usually 1/3rd what Celsius offers.