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Deutsche Bank questioned Tether's operations

10.05.2024 22:00 2 min reading
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Deutsche Bank questioned Tether's operations

Deutsche Bank's research has sparked considerable discussion in the financial industry by looking at stablecoins, specifically Tether's USDT, amid increasing scrutiny over the features and reliability of stablecoins.

Theirs study, which covers 334 currency pegs dating back to 1800, reveals that only 14% of them have remained stable over time, raising concerns about the future reliability of stablecoins such as USDT, which aim to match the value of traditional currencies such as the US dollar.

Stablecoins play an important role in the cryptocurrency market by providing traders with a hedge against typical market fluctuations by maintaining stable values. With USDT's market cap exceeding $100 billion and often surpassing Bitcoin in daily trading volumes, its importance is undeniable.

The Deutsche Bank report, however, questioned the stability and transparency of USDT, citing previous regulatory issues that cast doubt on its reliability. For example, in 2021, Tether was fined by the Commodity Futures Trading Commission and the New York Attorney General for misrepresenting the amount of its reserves.

These incidents highlight persistent doubts about the soundness of the USDT's financial backing and integrity. Historically, stablecoins have been characterized by solid reserves, high reliability and strict regulation – qualities that many of the leading stablecoins lack. The report also discusses the failure of Terraform Labs's TerraUSD and Luna, which wiped $40 billion from the market, highlighting the potential risks. In addition, Tether's dominant market position, associated with speculative practices and transparency issues, may pose broader risks to the cryptocurrency ecosystem.

JPMorgan also expressed concern about Tether's dominant position in the stablecoin market, with USDT holding over 69% of the market share, indicating significant influence and associated risks. Despite the criticism and potential regulatory threats, Tether's CEO staunchly defended the company's operations, saying USDT remains effective in its market role despite the challenges.

This ongoing debate highlights the complex dynamics in the cryptocurrency sector, which combine traditional financial principles with innovative digital assets, constantly challenging regulatory and stability norms. Tether's operations and their wider market implications are likely to continue to be the focus of industry stakeholders.

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