A lot of cryptocurrency enthusiasts will be aware of the problems faced by Tether. The company provides digital tokens linked to their native fiat currency value. However, it appears this peg is no longer being maintained, at least where Tether USD – or USDT – is concerned. That is not a positive development by any means, as this situation needs to be addressed sooner rather than later.
Tether Can’t Maintain USD Peg
Things have been unraveling for Tether over the past few weeks. This is partially due to funds being frozen in their Taiwanese bank account. Ever since the US introduced more strict KYC and AML requirements, so other countries have had to follow suit. Taiwan is one of the exceptions so far, which means companies like Tether can’t convert USDT to USD transfers right now. Other companies affected by this problem include Bitfinex and BTC-E.
This is causing issues for the USDT trading pair, to say the least. Pegging a digital token to a fixed fiat currency value is not an easy feat. Tether holds 1 USD for every USDT in existence. However, a lot of that funds are effectively frozen, as mentioned before. In theory, every 100 USDT is worth 100 USD, but that does not seem to be the case right now. To be more specific, users have to convert USDT through third-party exchanges if they want USD funds in their bank account.
One of the exchanges providing this conversion service is Kraken. However, users need to pay a premium price for converting USDT to USD. Right now, that premium sits around 7%, which may continue to increase as time progresses. It is a simple matter of people providing a service others need. Paying a premium price is not uncommon in this regard. Unfortunately, it also means every USDT is worth US$0.93, instead of US$1.
There are very few other options to convert USDT to USD right now. Tether and Bitfinex are the two main service providers. However, they both suffer from banking issues, leaving USDT holders with very few options. Paying a 7% premium is not something people will enjoy, but it is their best option right now. It is equally possible to hold onto USDT and hope for the best, although that may take weeks, if not months.
Header image courtesy of Shutterstock
