This is such an important point. We have to have a long, trusted history as a pegged asset before we'll be taken seriously as a pegged asset. It may take many months or even years and the longer we wait, the longer it will take to build that trust.
Tether went from $500000 to $1.6 billion
Daaaaamn. Either BitFinex is just friggen amazing at on-boarding new fiat into cryptocurrency or that sure seems like a nice money-printer they have there. Heheh... I won't get into that discussion here though. :)
USDT doesn't necessarily work the way people think it does in terms of so-called "on boarding" (i.e. people from outside crypto deposting new USD and getting USDT in return). It can also attract capital directly from crypto wealth and do so completely legitimately (i.e. without the rumors of fiat printing being accurate). Here's how.
Let's say people are selling their ETH, BTC, XRP, etc. (even STEEM) wealth into USDT, and this drives up the price of USDT (say to 1.01 or 1.02). Assume Tether/Bitfinex has $100 million of its own corporate working capital from VC, private backers, etc. They can use that $100 million to legitimately print 100 million USDT for their own account. At this point the printing is not fraudulent, fractional reserve, etc. because $100 million gets transferred from corporate working capital into the USDT escrow account. They then dump that USDT onto the market in exchange for BTC, ETH, etc., driving the price of USDT back down to 1.00.
Now the final step is interesting. Tether can take the BTC, ETH etc. they just bought and send it to a high-limit corporate account on a major fiat exchange, and sell it back for USD, replenishing the original $100 million corporate funds, to repeat the process again when needed.
I have a feeling this is actually where most of the USDT market cap growth has come from (assuming it isn't mostly fraud), but I have no proof it of, just inference.
Interesting. I question how they can keep printing new Tether and aren't burning it, but maybe that's just a sign of more people coming onboard. To my understanding, they can't print Tether unless it's backed by money in the escrow. If they keep printing, that implies real new money going towards the escrow, right? Maybe it's not "new" money, but money Tether/Bitfinex already has on hand, but it still seems to me when things fluctuate the other way, we should be seeing Tether burned and funds returned back from the escrow to BitFinex to cover real USD withdrawals. Maybe if the bull run turns bearish we'll see that.
Again it isn't a question of onboarding necessarily, just capital flows, and quite possibly it is because with $400 billion or so in newly-added crypto wealth the overwhelming majority of capital flows are from other highly-appreciated cryptos (BTC, ETH, XRP, many others) toward USDT not away from it. Also keep in mind USDT's role in trading pairs, which itself creates added demand for it (especially as USD price of the other coin increases; more USDT needed for buy orders). Also, to me it sure looks like many of the paths by which new outside, so-called "onboarding" capital is entering crypto have little to nothing to do with USDT (Coinbase, Korea, Japan, etc.). Or perhaps it is all or part fraudulent as many suspect. I don't know (and in some sense it doesn't matter; part of the problem with the non-trustless peg model is that it simply can't be trusted).
It isn't so much a matter of bull run vs. bear run as it is demand for stable crypto. It is quite plausible to me that demand for stable crypto has mostly just increased over the past year or so (and indeed this is mirrored by the other, smaller stable cryptos). But at some point when the demand for stable cryptos tops out and heads downward, there should indeed be burning of USDT.
By all accounts BitFinex's ability to handle real USD withdrawals has, at best, been greatly hampered by banking issues. So this path by which capital could conceivably exit USDT may be quite small. But in any case given the natural friction of exchanging between crypto and fiat (and relative lack thereof in exchanging crypto-to-crypto) it may always (or at least for a long time) be that the dominant flows into and out of USDT are between USDT and other cryptos, not between USDT and USD directly.