If Tether (USDT) were to collapse, the effects on the cryptocurrency market would be devastating.
USDT plays a crucial role in providing liquidity across numerous exchanges and is a key component of many trading pairs. As the most widely traded stablecoin, its collapse would send shockwaves throughout the entire crypto ecosystem.
The immediate impact would be a significant reduction in market liquidity. USDT currently accounts for a large portion of daily trading volumes, and without it, the ability to trade and move assets quickly would be severely hampered.
For context, as of June 26, USDT was the most traded cryptocurrency, with a daily trading volume of nearly $60 billion, surpassing Bitcoin's volume of around $43 billion. The market capitalization of BTC is approximately $1.12 trillion, while USDT's is around $112 billion. This comparison underscores how deeply intertwined USDT is with the crypto market, and how its collapse could trigger a massive disruption.
Tether issued $80 billion worth of USDT tokens during 2020 and 2021 alone, which highlights its enormous influence. If USDT were to collapse, the liquidity it provides would disappear, likely leading to a sharp drop in cryptocurrency prices across the board. Investors would rush to liquidate their positions, causing a significant market sell-off and steep declines in asset values.
Prominent figures like Vitalik Buterin have referred to Tether as a âticking time bombâ for Bitcoin, suggesting the potential for widespread disruption.
Exchanges that heavily rely on USDT trading pairs would face operational chaos. Many centralized exchanges use USDT as their primary stablecoin, and a collapse would likely force them to halt trading, limit withdrawals, and enter emergency maintenance. Smaller exchanges might not survive the liquidity crisis, potentially leading to bankruptcies.
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