What would happen if USDT eventually collapses?
If Tether (USDT) were to collapse, the impact on the crypto market would be catastrophic. USDT is the backbone of many trading pairs and provides essential liquidity across numerous exchanges. As the most traded stablecoin, its collapse would send shockwaves throughout the entire crypto ecosystem.
Firstly, the immediate effect would be a drastic reduction in market liquidity. USDT accounts for a large portion of daily trading volumes.
As of June 26, USDT is the most traded crypto asset, with a volume of nearly $60 billion, surpassing BTC, which has a trading volume of nearly $43 billion. Moreover, there is a tenfold difference in their market caps: BTC is around $1.12 trillion, while USDT is approximately $112 billion. This highlights the gravity of the potential impact a USDT collapse could have.
Tether printed $80 billion in USDT tokens throughout 2020 and 2021 alone, suggesting its massive influence. If USDT were to disappear, the liquidity it provides would vanish, causing prices to plummet across the board.
Moreover, investors would scramble to exit their positions, leading to a massive sell-off and a steep decline in crypto asset values. Vitalik Buterin has previously referred to Tether as a “ticking time bomb” for Bitcoin, hinting at the potential for widespread market disruption.
Secondly, exchanges that heavily rely on USDT pairs would face operational disruptions. Many centralized exchanges use USDT as the primary stablecoin for trading pairs.
A collapse would force these platforms to halt trading, restrict withdrawals, and enter emergency maintenance. Smaller exchanges, in particular, might not survive the liquidity crunch and could go bankrupt, resulting in users losing access to their funds.
Moreover, the collapse of USDT would erode trust in stablecoins and the entire crypto market, casting doubt on the reliability of other stablecoins, like USDC and DAI. This loss of confidence could deter new investors from entering the market and push existing ones to withdraw their funds. #usdt
