The USD pegged cryptocurrency Tether influences almost as many markets as Bitcoin while theoretically just being worth $1. When we investigate further, we find that the assumption we can change 1 USDT into 1 USD may not be valid if a significant portion of us attempt this at the same time or when certain exchanges like Bitfinex or Kraken crash which are the primary places to trade USD/USDT. In that case, we need the best alternative to USDT. Are Steem Dollars or SBD the ideal choice because of the guaranteed ability to convert 1 SBD into 1 USD worth of Steem on the Steem blockchain?
In my opinion, which you can take or do what you want with it, Tether is the breaking point, the big potential problem for all cryptocurrencies because it seems sketchy as to whether we will actually be able to turn Tether at some point into US dollars.
Best Alternative to USDT? Steem Dollars or SBD!
I think the best alternative to Tether is Steem Dollars because unlike Tether, which theoretically represents some money you can get in exchange with US dollars, Steem Backed Dollars actually gives you one dollar worth of Steem off the Steem blockchain.
The nice thing about Steem Dollars is that it's not possible for Steem Dollars to truly go below a dollar, because we can always just convert to Steem at one dollar. Meanwhile, Steem Dollars can actually go higher like right now where it is at about $12 dollars and can go up to any price, whereas Tether just keeps printing more when the price gets up too high.
Now, at first, this might sound good, but when we start looking, Tether or USDT looks really sketchy.
I don't trust this at all.
In fact, it seems like if there is some big crash, Tether would be right in the middle of it.
What is Tether?
Tether is a cryptocurrency that's supposed to be pegged to one US dollar. In other words, it is worth one US dollar, and then you have Tether at that rate. Every Tether is not, I guess, worth one US dollar.
Now, that sounds good in theory, but the problem is that you need to be able to actually get one US dollar out of your Tether. If you have Tether and you expect it's worth a dollar, you need to actually be able to turn that dollar into one real dollar or it's just imaginary. It's not real. It doesn't actually give you a dollar if you can't make it a dollar.
Now, if we look at the charts for Tether, it gets traded a whole lot. If you look at the markets, it has huge volumes.
Tether or just Tether is one of the highest-traded cryptocurrencies and the problem is it's essentially just paper money. Unless you can actually take it to US dollar, you have no idea of what you'll be able to get out of it.
Now, this is fine as long as it's working, but like the other day, a Tether wallet was stolen and 30 million dollars disappeared. If everyone wants to cash out Tether at the exact same time, it could be a big problem.
When people start realizing, "Hey, this Tether isn't really worth anything," or "I'm not going to take it if no one wants to buy Tether."
On Bittrex and Poloniex, Tether, or just Tether, is one of the top currencies traded because it's the only way you can effectively trade in fiat.
Now, you're not actually trading in fiat, but you're effectively trading in fiat because technically, Tether is just representing a dollar. It's not a real dollar that an exchange like Coinbase or Bitstamp will pay out. It's not something that you are committed to getting paid out.
If you will notice, one of the few places you can actually change USDT or Tether straight to US dollars is on Bitfinex. That's the number one place currently to exchange USDT to USD.
Now, that's also a really big problem because Bitfinex is currently the number one exchange in terms of volume, and USDT or Tether is one of the top things on Bitfinex in terms of being traded, and USDT/USD is the number eight traded pair currently with these others above it.
This might not seem like much until you start looking into this a bit more. If you've never used Bitfinex you might think, "Oh, well. So what?"
Well, let's look at this. I just got this notice logging into Bitfinex.
"United States Customer. Please be advised that Bitfinex is terminating its relationship with US individual customers."
Now, wait a minute, I'm supposed to have a cryptocurrency, the main place I can exchange that is on Bitfinex and you're telling me Bitfinex is terminating its relationship with US customers.
Where am I supposed to exchange my USDT for US dollars?
Can I trust an exchange that is terminating its relationship with all US customers?
That can't be a good sign. There's no way that's a good sign. In fact, I am betting every one of the currencies that's mainly traded on Bitfinex is going to have some disaster in terms of price crash as Bitfinex crashes.
Now, Bitfinex is my current pick for an exchange to crash.
This is really sketchy
The main place you can exchange USDT to USD is on Bitfinex and if Bitfinex is becoming completely unreliable and not trustworthy, then where does that leave us with Tether to US dollar?
You see, if no one will exchange USDT to USD at one dollar, then the whole system for Tether breaks down, because these little BTC/USDT prices can go all kinds of crazy.
Now, it's one dollar today, but if Bitfinex or the US dollar against the Tether breaks down, all of a sudden the BTC to USDT price can skyrocket.
You might have to pay $2 or $10 of Tether to get one dollar of Bitcoin because all this Tether is based on the bottom-line assumption that one Tether is worth one US dollar, that you can exchange a Tether for a US dollar. If you can't exchange a Tether for a US dollar anywhere, it doesn't work. The US government issues US dollars, and Bitfinex is not maintaining relationships with the US customers.
Do the math on all that!
That's not good for Tether, and recently Tether just had a news story:
"Tether claims 30 million dollars stolen out of a treasury wallet."
That's not good either!
This Tether is in a very good position to collapse on Bitfinex and if you can't use it to trade your US dollar, then here's what can happen. You see that it looks like dollar markets on Bittrex, but these are not real dollars, these are Tether.
This price could go anytime, Tether could go all kinds of crazy.
That's why I'm saying there needs to be an alternative for Tether because it is not trustworthy.
Holding USDT on any exchange could lead to a complete, partial or significant loss of all that. It's not the same as holding it in a bank account, and a good question is, where do all these Tether come from?
Are there actual dollars somewhere representing all that because if not all this Tether is imaginary?
It's just made up and in that case, we need an alternative.
We need something that has more reliability than Tether. We need something that does have a guaranteed dollar cash out no matter how low it goes.
Fortunately, the Steem blockchain has an outstanding proposition for that, which is called Steem Dollars.
If we look on Bittrex you can see what the Steem Dollars have done lately. It basically stays in line with about one dollar or so of Bitcoin.
It can actually go up and it's about in line with one dollar of Steem. It tends to be worth about $1 worth of Steem because whatever you can get for a dollar of Steem, you can usually get a dollar of Bitcoin. It's about the same thing.
Now, what's cool is you can actually see that Steem Dollars is actually up to $12 right now!
While the Steem Dollars had mostly hovered around a dollar and sometimes has dipped a little bit lower, it doesn't matter if it dips lower, which is really cool because there's a feature on Steem called convert.
On the Steem blockchain, if you go over here, you can see there's a Steem Backed Dollar exchange rate. Every witness on Steem puts a rate of Steem Backed Dollars to Steem.
Therefore, one Steem is worth 1.3 Steem Backed Dollars, that's the amount of US dollars that one Steem is worth.
What anyone can do when we've got Steem Dollars in our wallet on Steem, is we can convert to Steem.
Now, the cool thing is when we convert Steem Dollars (SBD) to Steem we always get a dollar worth of Steem. No matter what the SBD price is, it always puts out a dollar worth of Steem.
If Steem is a dollar and we put in one SBD, we get one Steem out of it.
If Steem is 10 cents and we put in one SBD, we get 10 Steem out of it. If Steem is 10 dollars and we put in one SBD, we get a tenth of a Steem out of it.
Therefore, unlike looking at the Tether, Steem Dollars actually have the backing of a blockchain that we can see out there.
We can see exactly everything inside Steem. We can look at the blockchain. We can see how many Steem Dollars are out there. If we go to @poloniex or @bittrex in the wallet, we can see exactly how many Steem Dollars are being held in that specific wallet.
We can literally track all of the Steem Dollars that are available. Steem Dollars are guaranteed to be worth $1 worth of Steem because of the ability to convert to Steem. Steem Dollars always convert to Steem at $1.
Now, this does provide the potential for the price of Steem to crash because when the price of Steem goes up past $10 there will be a ton of author rewards printed every day.
If we look at my blog, half of the rewards paid out are paid out in Steem Dollars (SBD). This is really sweet because when I'm getting a pay-out, half of this is in Steem and half in Steem Dollars.
I got for this one a few days ago for$109.42, which is outstanding. Now, half of that was in Steem Dollars, and because the SBD price was $2.23, I actually got almost twice as much Steem when I went in and used the market. Today I am grateful that a payout of about 60 SBD is coming which multiplied by 12 means I may get over $700 for one ordinary post on Steem because of the high SBD price!
The nice thing is when the Steem Dollar price is above a dollar it encourages sell pressure on Steem. Therefore, if the Steem price is significantly above a dollar, the authors who are getting paid out on Steem are then incentivized to just turn that straight into Steem or to sell it right away as well.
This allows a consistent down pressure, if the SBD price gets too high, the down pressure from the new SBD printed every day to authors will help encourage it to return to a dollar, but then it won't actually be able to go much below a dollar.
Now sure, if you look back you will see some days where it was trading back as low as 70 or 80 cents because Poloniex was broken for a while and you couldn't actually withdraw it from Poloniex, which means that you couldn't actually go do a conversion request with it but this was fixed eventually.
The Steem Dollars has some real backing and transparency. I'm not satisfied with the transparency of something like Tether, and the nice thing is, let's say the SBD price goes back to one US dollar, then I would imagine this is how these spikes happen.
As you look over the last month, it was trading around a dollar, and then all of a sudden one day it gets bought up to about two dollars. If you're holding Steem Dollars, you might get lucky because if there's just a lot of buying pressure one day, and there was a lot of buying pressure on Steem Dollars the day that there was the Tether wallet hack.
Then, in fact, Steem Dollars might be a really good currency to just hold because if there is some big Tether crash, it will be extremely attractive to hold on to as there's at least some real value out of it.
Then, it's fairly easy when you have Steem Dollars, you can just trade that back and forth to Bitcoin if you're on Bittrex or Poloniex, and I'm sure this will be coming on more exchanges.
Steem Dollars can be traded back and forth to Bitcoin, and then cashed out.
With Steem Dollars there's not as much of a risk, unless something happens to Steem of course. There's not as much of a risk because there's not as much use on it either. There's not as much of a risk of a total Steem Dollars crash the way there is with the massive amounts of Tether, the lack of transparency as to how all that money's actually being used, does it represent actual US dollars, etcetera.
Then, there's just the upward potential. Imagine if you bought 100 SBD or 100,000 SBD, whatever number you want, at around a dollar because you just wanted to essentially cash out and have something worth a dollar, then it goes up to two dollars.
Your Tether is never going to go up to two dollars, whereas it could go down to 50 cents or there could be a huge spike in terms of the price of Bitcoin to Tether where it effectively could be worth a whole lot less.
You've got all these different huge potential issues with Tether, a little warning in the 30-million-dollar treasury stolen, and then you've got an alternative called Steem Dollars that gives a clear way, a much better opportunity than using Tether.
I say that I don't have anything aside from Steem, but technically I do have Steem and Steem Dollars that flow in and out of my wallet.
Another thing that also makes Steem outstanding is unlike most of other blockchains, you can start to earn some money after joining.
Now sure, I have a lot of followers, I've invested a lot of money on Steem, and the average author is not going to come in and earn good money right away by posting on Steem, but anyone anywhere in the world can easily earn a few cents if not a few dollars just by joining Steem and making some posts.
Then, when we get these author rewards, these become Steem Power, which can be powered down into Steem and also half of the rewards are Steem Dollars.
Those Steem Dollars can be immediately traded on an exchange and if the price goes below a dollar you get $1 worth of Steem.
The worst thing that can happen essentially with the Steem Dollars for the price of Steem to crash or something totally to happen to Steem. If you just want to head your bets a little bit, it might be nice to hold some Steem Dollars and some Tether, if you don't want to be completely tied up.
While so many traders are great at having a diverse portfolio, the Tether brings in a lack of diversification for most traders.
If you're on an exchange like Bittrex or Poloniex, these are two of the top exchanges after Bitfinex, but Binance also uses Tether as one of the top things to trade.
You see, Tether is where most traders do not have bets hedged. If something happens to Tether, this wallet hack is a nice little sign and all this Bitfinex stuff is another nice sign, then a lot of traders on Bittrex and Poloniex are going to find it difficult to cash out, especially for an instant cash out that doesn't require withdrawing out to another website, where you just immediately want to trade into something that might have some real value.
I'm very grateful that the Steem blockchain innovated Steem Dollars. Now, Bitshares also has a bunch of assets that are tied to a specific value, but you have to be on Bitshares for that, and I don't see any Bitshares on Bittrex because it was delisted.
We do have Steem Dollars and we also have Steem.
One little tip now that you've read all the way to the end, when Steem Dollars pumps, it's a good indication that Steem is going to pump too.
When I get paid out my author rewards on my posts, half of my rewards get paid out to me in Steem Dollars (SBD).
When I get half of those and the SBD price is up at $2, I have two options.
One, I can immediately send that off to an exchange.
Two, when I want to reinvest, which I do, then the easiest thing to do without having to withdraw my money is to simply put in an order and immediately turn my Steem Dollars into Steem because I think I'm essentially getting double for a while.
I'm betting that I'm not going to be able to keep trading my Steem at that rate.
What I do then, as you can see from some of these market orders, I then start paying Steem Dollars for Steem.
I start buying a bunch of Steem with my Steem Dollars and this helps reduce the Steem Dollars price, which is good, it's a dollar worth of Steem and it doesn't need to go that high.
I wouldn't recommend paying more than two dollars for Steem Dollars, but if it's below two dollars significantly, if it is close to a dollar, it might be a really good thing to buy.
What happens when the Steem Dollars price pumps this puts consistent pressure on Steem. It puts consistent buying pressure on Steem because this internal exchange on Steem, there are automated trading algorithms that when the orders go through, these automatically go through and exchanges them.
What happens as we can see, there's now a pump in the Steem price that was very close to the pump in the Steem Dollar price.
Often it takes a little while before the Steem price pumps, but that happens when there's consistent buying demand, as that new SBD getting created gets traded and bought over into Steem.
I often, if Steem Dollars is trading around a dollar, just hold on to it because I know it has the chance sometimes to pump to $2, and when it pumps to $2, then I will buy a bunch of Steem with it.
Another thing that makes the Steem Dollars awesome is that if you are just watching the price of SBD and the price pumps, often you got a good chance of the Steem price pumping next because of these consistent orders.
I've looked at the market a lot of days, right now there were a few sell orders for Steem to Steem Dollars. You can look at my trade history, all my trade history has been buying Steem Dollars.
But if you look when the Steem Dollars price is up like this, there's just tons of buy orders in through the Steem market, and then you get some of these big candles just like this, and then up and down.
Thank you very much for learning about my best alternative to USDT and I hope this is helpful because I'm here to be of service to you.
I'm here to help you avoid some disaster like if for example Tether crashes. I've made this post with the hope that you can get out of the way before it happens, that you don't have to lose 50% of your crypto profits because you were holding a bunch of Tether on one exchange, and then the Tether price crashed, or the only place you were trading you had to essentially withdraw in Tether.
I hope this is helpful for you if you want an alternative to Tether because this might save you a whole lot of money on losing Tether if something happens with it in the future.
Final words
Thank you for reading this blog post, which was originally filmed as the video below.
If you found this post helpful on Steem, would you please upvote it and follow me because you will then be able to see more posts like this in your home feed?
Love,
Jerry Banfield with edits by @gmichelbkk on the transcript from @deniskj
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