Note: The original text comes from CNN, written by Andrew Kamsky and published on July 16, 2024!
William Quigley, co-founder of Tether (USDT), has clarified a common misconception that confuses many in the cryptocurrency community. Contrary to popular belief, USDT is not pegged to the U.S. dollar. Quigley firmly stated: “Tether is not pegged to the U.S. dollar and is not pegged to the U.S. dollar.”
The word “peg” implies that a strict one-to-one price ratio is ultimately enforced, and Tether does not follow this concept. Instead, Tether can be exchanged for US dollars, and its exchange price can fluctuate based on market supply and demand dynamics.
Quigley elaborated on the impracticality of maintaining the peg. “The peg is a disaster because it would require a balance sheet so large that even the largest country in the world cannot afford it,” he said.
Understanding Tether: William Quigley’s Clarification
Tether’s stability comes from its convertibility. “If you own a Tether, you can convert it into dollars, use it to pay, trade it at any price you want. That’s not our problem,” he explained.
Market dynamics also affect the exchange rate of Tether and the US dollar. Millions of people trade Tether on hundreds of exchanges, and its price fluctuates based on supply and demand. Quigley pointed out: "Tether sometimes trades slightly above one dollar, and sometimes slightly below one dollar. It will never trade exactly equal to one dollar."
This volatility is similar to trading between traditional currencies, which is affected by local market conditions and regional exchanges. For example, in a market downturn, people may rush to buy Tether as a safe haven, pushing its price slightly above one dollar. This behavior mirrors the ins and outs of traditional currency trading, where economic forces determine value, rather than a fixed peg.
Understanding that Tether’s stability stems from its convertibility, rather than its fixed peg, will be a revelation to investors and users. Quigley’s clarification highlights the nuances of Tether’s operating model and the broader market dynamics that impact its value.
Tether and the Future of Cryptocurrency
Quigley spelled out the significant differences between Tether and a potential central bank digital currency (CBDC). Tether is a privately issued stablecoin, while CBDC will be issued by a central bank. This fundamental difference creates clear challenges for control and innovation.
“As long as the government is involved, government control and innovation ceases and eventually dies,” Quigley noted. He believes that CBDCs are controlled by the government and may lack the innovative advantages of privately issued stablecoins such as Tether.
The cost and complexity of developing a government-backed stablecoin is also very high. Quigley explained: "If a small government, or even the US government, wanted to do this, it would be a huge undertaking. It would cost a large portion of the federal budget and it would probably take five years to actually implement it."
This is in stark contrast to the relatively low cost and rapid development of Tether, which Quigley stressed was created in 2014 for just $500,000. This difference in development resources and time highlights the agility of private companies compared to governments.
Despite these challenges, Quigley acknowledged the benefits of tokenized fiat currencies. He believes that in the long run, all major economies will adopt tokenized fiat currencies. He emphasized that tokenization has many benefits and few disadvantages, making it an attractive innovation for central banks.
However, Quigley noted that the inherent control that governments seek to maintain could stifle cryptocurrency decentralization and private sector innovation. The possibility of central banks adopting tokenized fiat currencies exists, but the agility and innovation of private issuers such as Tether make a strong case for the future of digital currencies.
Quigley’s perspective highlights the dynamic relationship between private innovation and government control and how this relationship will shape the development of digital currencies. His perspective provides us with a deeper understanding of the challenges and opportunities in the field of stablecoins and CBDCs.
The role and limitations of Bitcoin
Bitcoin (BTC) has been called the original cryptocurrency and a revolutionary financial technology. However, William Quigley stressed that Bitcoin is more of a store of value than a functional payment system.
He bluntly stated: "From a payments perspective, Bitcoin is a failure. It's been around for 15 years, but no one uses it for payments." This statement emphasizes the limitations of Bitcoin in daily transactions, which are caused by its volatility and complexity of use.
Quigley explained that Bitcoin's long-term holding pattern also reflects its role as a store of value. A large portion of Bitcoin has not been moved for a long time. "80% of Bitcoin has not been moved in a year because it is troublesome to move." This behavior is consistent with the characteristics of holding assets for potential appreciation rather than for daily consumption.
In contrast, stablecoins such as Tether seem more suitable for transactions. Quigley emphasized that using Tether is more feasible than using Bitcoin "if you want to bypass any fees or all that kind of thing." Stablecoins can maintain a relatively stable value, so they are suitable for daily use without having to worry about large fluctuations in value.
The convenience factor plays an important role in the adoption of payment systems. Quigley believes: "Consumers want convenience, it's all about convenience." Bitcoin's current infrastructure cannot provide the easy onboarding experience that traditional systems or even stablecoin-based systems provide. This lack of convenience has prevented Bitcoin from becoming a mainstream payment method.
Overall, while Bitcoin remains an important store of value and investment asset, its actual use as a payment system has been overshadowed by stablecoins and other easier-to-use digital currencies.
Other discussion topics:
Tether’s origins and motivation
Challenges Facing Altcoin Exchanges
The Development of Tether
Misconceptions about the Tether peg
Stablecoin Market Dynamics
Tether’s Impact on Cryptocurrency Trading
What regulators think of Tether
Central Bank Digital Currency
Peer-to-peer payments and convenience
The role and limitations of Bitcoin
DeFi and Financial Innovation
ETFs and Financial Stability
The future of cryptocurrency and economic prospects
*Friendly reminder: This article is for popular science purposes only and does not constitute any investment advice!
