Stablecoin Tether (USDT) is the third biggest cryptocurrency by market capitalization, and it is obviously the biggest stablecoin on the market. However, it's popularity does not necessarily means it is a great invesment. Theter is know in the crypto comunity not for being the best stablecoin in the market, and guess what, a lot of people here hate it.

First of all, to better understand the Theter problem, we should take a look at the differnt types of stablecoin

DIFFERENT TYPES OF STABLECOINS

1. traditional collateral: those are the stablecoins backed up 1:1 by fiat currency, this type of stablecoin is considered an off-chain asset. Examples are USDT, GUSD and more.
2. crypto collateral: those are backed up by another crypto as collateral, this process occurs on chain and relies on smart contracts. DAI is the most popular one.
3. algorithmic stablecoins: their price stability results from the use of specialized algorithms and smart contracts that manage the supply of tokens in circulation. TERRA (UST) is the most popular.

4. commodity backed stablecoins: they are collaterized by physical assets (gold, oil,...). Examples are XAUT and PAXG

   People use stablecoins to facilitate cryptocurrency trading, transfer money, and earn interest. However, the lack of regulation and transparency surrounding these coins, particularly Tether, have authorities on edge. Here are a few reasons:

1) USDT IS ONLY BACKED BY 2.9% IN CASH RESERVES

This is probably the most problematic. Holding Theter is not the same as holding U.S. dollars. The price may be pegged to the dollar, but if there was a run on Tether(lots of people tried to swap their Tether for dollars), there's no guarantee the company would have enough cash to pay out (and people who held the coin would be fucked).

Theter is in fact backed up by cash, cash equivalents, secured loans, corporate bonds and other investments. The trouble is that Tether hasn't released information about what types of loans it has made. We don't know who the borrowers are or what types of debt it is. Most importantly, we don't know how easy it would be for Tether to access that money. With that being said, USDT is only backed by 2.9% cash reserves

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As you can see here, Cash (in green) is responsible for the 3.87% of the \"Cash & Cash equivalents\", which is roughly 2.9% in total

2) Tether has had trouble with the New York Attorney General's office

the New York Attorney General reached a settlement with iFinex, the parent company of Tether and crypto exchange Bitfinex. Investigators accused the companies of unlawfully hiding losses. Attorney General Letitia James said, "Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie."

iFinex had to pay an $18.5 million fine and is no longer allowed to operate in New York. It will have to provide quarterly reports on its reserves, hence the breakdown we talked before. The company denies any wrongdoing.

3) If Tether fails, it could shake the whole crypto industry

The worry is that Tether is operating in a similar way to a bank or other financial institution, but without any of the regulations that banks follow to protect consumers and prevent economic crises. That's why there's such a push for stricter stablecoin regulation: to protect both the economy and the crypto industry.

As Rohan Grey, assistant law professor at the Willamette University College of Law told the Financial Times, "The growing world of stablecoins arguably underpins the entire crypto community right now. If that collapses, the whole space could collapse".

CONCLUSION

As I stated before, USDT is not the only stablecoin, there are serveral ones that are either more transparent about what money they hold or they are either less centralized, so why the fuck are people still using it?

And you? Do you think that USDT is a ponzi? If so I would be glad if you commented down here!