Stablecoins provide much sought after stability in the volatile crypto markets. They are sometimes even said to affect the price of bitcoin in drastic fashion. Tether (USDT) in particular continues to be widely scrutinized for this, with recent lawsuits about conflicts of interest and price manipulation being hotly contested. More important to dive into, however, is the reality that some stablecoins are harmful to bitcoin adoption. A kind of fractional reserve banking 2.0.

Also Read: Tron-Based Tether Has Ballooned to Over 900 Million Tokens, Almost 22% of Total Supply

Backed by the State

Stablecoins can in one sense be divided into two broad classes: those that depend on fiat (government-issued money), and those that leverage other, non-fiat-based assets or commodities for their value. USDT, for example, is a centrally managed asset that depends entirely on the fiat monetary system for its value stability.

Where Tether began with claims of being backed “1-to-1” by and redeemable for U.S. dollars, that policy has since been…

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