It’s hard to trade crypto futures without USDT, but many people have never wondered why it’s worth $1.
[How it works] A stablecoin is operated by its issuer: you give it $1, and it issues you 1 USDT, while keeping the
dollars (and equivalent assets) in reserve. Anyone in the market who wants to exchange USDT back for dollars can ask the issuer to
redeem it. This “mint-redeem” mechanism acts like an anchor, keeping the price close to $1.
The price may occasionally drift slightly (for example, to 0.999), but arbitrageurs quickly step in to close the gap.
[Risks to watch] Reserve transparency. USDT regularly publishes reserve reports (including assets such as U.S. Treasury securities),
But stablecoins have had their share of disasters—under-collateralized stablecoins have lost their pegs and collapsed, leaving holders with nothing
to show for it. So don’t leave large sums in a single stablecoin for the long term—diversification is free insurance.
What do you think? Share your experiences in the comments.