Is USDT safe?

USDT, or Tether, is a cryptocurrency pegged to the US dollar, making it extremely stable and reliable in terms of its value. This has made it attractive to many investors who are looking for an asset that will preserve their funds without the volatility commonly associated with other crypto assets. But is USDT safe?

Why is Tether USDT Popular?

USDT is currently the biggest stablecoin in the market and one of the largest cryptos, with a market cap of $67 billion. At the same time, Tether is the most liquid stablecoin: its trading volume is approaching 35 billion dollars per day, exceeding that of Bitcoin, according to CoinMarketCap.

Source: glassnode studio

Tether has been established to provide investors with a reliable way to store their wealth. It is tied directly to the U.S. dollar, providing an assurance that its value will not suddenly be subject to large swings in market conditions or exchange rates.

Since USDT is supported by major exchanges like Coinbase and Binance ETFs that further increase its stability and credibility among investors. Additionally, some exchanges also require users to lock up large amounts of USDT before being able to trade on them, which again helps bolster its stability and performance over time.   

Main Concerns over USDT Safety

Transparency

The value of USDT is maintained by its issuer, Tether Limited. They are responsible for keeping the amount of USDT in circulation stable and backed by an equivalent reserve of US dollars.

Every time Tether issues one USDT, they are supposed to have 1 dollar in their account. The question is continually raised if the company really has the money they claim in the reserve account.

The biggest point of concern is a lacking proper audit performed by a professional accounting firm, which would prove that each Tether in the market is fully backed by fiat. Instead, the company is sharing reports by an “independent accountant” since March 2021. 

USDT Backing Independent Audit Results, September 2022 / Source: Tether.to

Choice of Asset Backing

According to the most recent report by Tether, only 10% of USDT reserves are held in actual cash, while the majority of the reserve comprises “cash equivalents”, deposits, and commercial papers. Furthermore, 9% of the reserves sit in loans and around 4% in other investments, which include other tokens. If compared to USDC stablecoin, which has 18% in pure cash and the rest is secured by short-dated US Treasuries, Tether reserves look a little less protected.

However, it’s fair to say that Tether LLC significantly decreased the portion of commercial paper as the form of reserves from 65% in early 2021 to 0.09% by the end of 2022. Hence, Tether is apparently working towards better transparency and security to provide peace of mind to those investing in it. 

Breakdown of Assets Forming the Tether Token Reserves, March 2021 / Source: Tether.to

In May 2022, the Tether coin price dropped below 1 US Dollar, pressured by Terra’s UST stablecoin crash and yet successfully survived the turmoil. With this in mind, there is still a fair chance that Tether has the required funds to pay out in case of mass sell-outs.

Is USDT a safe stablecoin compared to other options available?

The answer to this question ultimately depends on how you define safety. In terms of USDT’s price stability, there is no doubt that USDT could be a good match for you if you're looking for a reliable way to store value without having to worry about volatile market conditions. On the other hand, Tether Limited does have room for improvement.  

USDT remains an attractive option for investors who want to maintain some level of stability in their portfolio, provided Tether Limited keeps taking measures to ensure that the value of USDT remains stable over time.

As such, investors should carefully weigh the pros and cons of using USDT as part of their investment strategy based on their individual goals and risk tolerance levels.