Tether (USDT) is a cryptocurrency pegged to the US dollar created and managed by Tether, Ltd. This means that for each Tether-the-token that exists on the blockchain, there’s also $1 sitting in a bank account owned by Tether-the-organization. The idea is that when US Dollars are deposited into accounts managed by Tether, they issue new USDT tokens. Conversely, if dollars are withdrawn, they burn USDT. As of this writing, there are over 2 billion USDT in circulation.
Say you’re on your favorite exchange trading this and that, and your spidey senses warn you that a crypto market crash is imminent. You must escape to USD! But what if your exchange of choice doesn’t actually take fiat deposits? What to do when there’s no way to sell your Spankchain tokens for cold, hard cash? Do you really have to convert to BTC or ETH, transfer it to another exchange (like GDAX or Gemini), and then sell for USD? Ugh!
USDT to the rescue! Since USDT is pegged to the dollar, you can (in theory) sell your imminently rekt coins for USDT, and watch prices fall from a distance with fists full of USDT and a smile on your face.
Tether offers cryptocurrency exchanges a great way to provide “dollars” without all the messy red tape and regulatory mumbo jumbo of actually connecting with the US banking system and adhering to requirements for transmitting and storing USD.
Well, Tether exists on the internet, and sometimes people on the internet lie. I’m not saying Tether is untrustworthy — I mean… they tell you right on the website how much money they have in the bank. But you have to take their word for it, since there has yet to be a legit third party audit.
Also, lets say you trade your hard-won Bitcoins for USDT, and now you want to cash out that USDT for a suitcase full of Benjamins. Easy, you just go to the Tether website, sign up for an account, deposit USDT, and withdraw dollars to your bank account…
Any day now…
Or not. Apparently fiat withdraws haven’t been available to regular folks like you and me for quite some time. Maybe they really are “rebuilding the system.” They’ve been rebuilding it for a very long time now.
Oh, and don’t forget to check out Bitfinex’ed on Twitter.
A company called “Tether” creates Tether and claims that for each Tether there is a dollar bill hidden deep within the bowels of Khazad-dûm (or maybe a bank, idk), but we have to take their word for it. Exchanges like Tether’s Tether because it allows them to give customers USD without really giving them USD while also avoiding a good bit of regulation. Customers like it because they can “trade with USD” on offshore exchanges without all the hassle of attempting fiat deposits (and maybe avoiding the watchful eye of the tax-man). However, prying eyes are not far away these days.
Moving on then…
Dai is a cryptocurrency pegged to the US Doll…
Yes, but this one is different. Rather than relying on a faceless company and it’s promises of vast wealth hidden just behind a curtain (don’t peek!), Dai collateral is managed in the open on the Ethereum blockchain. Instead of IOUs for dollars that may or may not exist, Dai is backed by Ether locked in publicly viewable smart contracts on the Ethereum blockchain.
Dai was created by a company called Maker and is managed by the MakerDAO. The MakerDAO is a coalition of individuals holding the MKR token who votes on risk parameters for the Dai Stablecoin System. This system allows users to deposit Ether (and someday other tokens) into a smart contract to receive and resell Dai. The deposit is a collateralized debt position (CDP) where the debt is denominated in Dai, and Dai must be burned in order to retrieve the collateral. The price of Dai is kept stable around a target price via a subsystem called the Target Rate Feedback Mecahnism…
Right. Basically, smart people and smart contracts move a bunch of Ether around in a special market that generates Dai that can be used by you and me. The whole system exists to keep 1 Dai roughly equal to $1 USD. To properly learn about how it works, it’s best to just visit the website or check out some detailed articles.
There are a few good places to go:
OasisDEX — Where the creators of Dai sell their dai.
Bancor — A liquidity provider for a number of Ethereum tokens.
RadarRelay — A decentralized exchange.
Bibox — A centralized exchange (Use caution. Here be dragons).
Dai, like Tether, can also be used to hedge against cryptocurrency price movements — such as a decline in the price of Ether.
However, it can also be used as a stable currency within distributed apps (dApps) in the Ethereum ecosystem that may benefit from low volatility currency. For example, peer-to-peer lending markets will benefit from loans made with Dai rather than Ether, as lenders may not want to part with ETH that may be worth 20% more a few days later. Also, dApps that utilize real-world resources such as Golem (CPU cycles) and StorJ (disk space) may be better denominated in Dai, as it is easier to compare prices to equivalent centralized services.
More and more uses will be discovered as the Ethereum dApp ecosystem progresses, and the stability of Dai will increase as it becomes more popular and the collateral increases. It’s not perfect (yet), but it’s definitely a healthy alternative to Tether.
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