Continuing with our topic du jour
of stablecoins, we had mentioned that collateralized stablecoin providers will have to jump through hoops to close the loop with the traditional banks on the fiat side. We had also noted how secretive Tether (USDT) was, as it necessarily needed to be, regarding its banking relationships. Now comes news that Noble bank, the Puerto Rican bank that holds a large chunk of the USD underpinning USDT might be facing an old fashioned liquidity crisis and its viability as a going concern is contingent on additional funding coming through very shortly.
Depending on how this plays out, this could end up badly for USDT as well as for the broader crypto markets. Bitcoin prices have closely tracked Tether supply, and there have been allegations of manipulation against Tether, and multiple agencies continue to investigate the company. The last thing the still convalescing crypto market needs is choppiness ensuing from the collapse of a traditional bank that holds USD that underpins cryptocurrency pegged to USD issued by a secretive company; it would be ironic as we pass the tenth anniversary of the Lehman crisis.
Some of the old-timers might even see an interesting parallel between the design go Tether (or any collateralized stablecoin) and that of a cash CDO or asset-backed CDO. On the assets side, you have receivables, in the form of cash-generating or yield-bearing assets. On the liabilities side, you have creditors that you owe money to, in return for bearing risk. In the case of USDT, there is no real risk here, technically. This is (or was) supposed to be a straight-forward collateralization.
However, just as in the case of traditional CDOs a decade ago, there are always unknown unknowns, especially as complexity increases. Even the Lehman crisis was heralded initially by a couple of small (in context) hedge funds with connections to Bear Stearns after some wrong bets on the housing marker. Will the Puerto Rican bank here prove to be a canary in the coal-mine or will this just be minor blip as we enter a potential bull-run in cryptos heading into the last quarter? We will find out soon enough.
Oh, btw, Huobi launched a social network
for crypto market participants. This could get interesting. How many coins are your likes worth?