Stability Amidst Chaos - An Introduction to Tether & the World of Stablecoins

Advantages of Tether’s Stablecoin Offerings

Introduction to Bitcoin & Stablecoin

Advantages of Tether’s Stablecoin Offerings

Meet Adanna, a young woman living in a rural African village where the CFA Franc, which has lost a staggering 99.5% of its purchasing power over the last 70 years, is the only currency available— making saving, an impossibility.

Adanna has always been intrigued by the idea of having control over her money, but it has remained an impossible dream until recently. The currency she uses is overseen by individuals who have shown not to have their people's best interests at heart, and her rural location limits her access to banking services. Consequently, Adanna has no choice but to rely on physical cash, leaving her vulnerable to theft and loss in addition to deterioration in purchasing power.

But that is all to change.

One day, a friend introduced her to Bitcoin and USDt, these new digital currencies operating independently of traditional banking systems. While Adanna recognises the merits of Bitcoin, its volatility poses a hurdle. Given her modest savings and immediate financial challenges, it's not presently a feasible option for her. However, with USDt, she learns that she can not only transact in US dollars, a far more stable currency, but she can self-custody her money and, with a basic internet connection, can transact with anyone anywhere without ever needing to visit a bank branch.

This is a game-changer for Adanna. With the ability to securely store and access her funds, she no longer has to worry about the risks associated with carrying cash or excessive currency devaluation. And more importantly, she can now make purchases online and send money to family members in other parts of Africa without dealing with the hassles of traditional banking.

As she continues to explore the possibilities of USDt, Adanna realises that this technology can potentially transform people's lives in similar situations. With USDt, everyone has access to financial freedom and security that has predominately been out of reach for so many.

These are but two of the numerous benefits associated with stablecoins, like USDt:

Financial Choice: Stablecoins offer a life-changing opportunity for individuals like Adanna who live in rural areas with limited access to reliable banking services. With a basic internet connection, individuals can use stablecoins to access currencies of their choice, such as the US dollar, and escape their quickly deteriorating local currency. This means they can have more control over their money without ever having to worry about currency instability.
Banking the Unbanked: Stablecoins provide a necessary solution for the unbanked population, including those residing in remote areas or facing difficulties opening traditional bank accounts. By enabling access to digital currencies, stablecoins offer a convenient and efficient way of transacting digitally and globally, empowering individuals who previously lacked such opportunities. Therefore, let's look at some of the other opportunities awarded to us since the emergence of Tether’s stablecoins.

Remittances

Imagine for a second that you were born and raised in Tonga. But as much as you love your home country, at an early age, you realise that there are limited job opportunities in your local community. So, as soon as you move out, you decide to leave Tonga and move to a nation with a greater job opportunity pool. In doing so, you can now better support your family when sending a portion of your paycheque home.

While this scenario may seem improbable, it is, in fact, a reality for billions around the world, especially those in Tonga. As of 2021, remittances—the act of sending money back to loved ones for support—accounted for an astonishing 45.5% of Tonga's gross domestic product (GDP).

You're probably wondering: What's the problem here?

To send money back overseas through a money transfer service such as Western Union is not free. It costs money, and not just a little, a significant amount.

Sending $100 US back to Tonga incurs a cost of $12.61 plus an additional loss of $8.60 due to the unfavourable exchange rate. This means more than 21% of the total amount sent goes to Western Union, a multinational corporation. As a result, a considerable sum that could have been in the hands of deserving Tongan families ends up in the pockets of the money transfer service provider. Can you imagine the benefits of having an extra 21% added to your income?

Furthermore, considering that Tonga's GDP was $469 million in 2021, and 45.5% of it comes from remittances, the exorbitant fees charged for sending money back home means that Tonga is missing out on an additional $45.2 million. This amount would translate into a 9.6% increase in GDP if it weren't for these fees.

And if you thought Tonga was alone in this, guess again.

Here is a sample of how much Western Union charges for sending $100 US dollars to some other prominent nations:

China: $21.21 fee + $2.60 exchange rate loss (23.81% loss)
Canada, USA, Mexico: $16.86 fee + $1.20 exchange rate loss (18.06% loss)
UK, Albania, Bosnia, Serbia, Slovenia: $17.92 fee + $3.10 exchange rate loss (21.02% loss)
Oceania and Southeast Asia: $12.61 fee + $8.60 exchange rate loss (21.21% loss) This is a staggering amount of money that is now in the hands of major US corporations. And this is where USDt comes in, as they provide a solution to the issue of high remittance fees.

Unlike traditional money transfer services, USDt is a digital currency that, for the purpose of transacting, moves upon the rails of blockchain. Since it does not require intermediaries such as banks or money transfer services, the fees are significantly lower. Additionally, as transactions are executed on a public blockchain, this ensures greater transparency as well as privacy. This means individuals can send money to their loved ones in other countries almost instantly, securely, and at a far lower cost.

For example, USDt, which operates primarily on the Ethereum and Tron blockchains, has averaged $1.02 and $0.000005 transaction fees, respectively, over the last year, regardless of the amount sent— the fee remains the same whether sending $5 or $10,000. And as we speak, developers are working on stablecoins built on Bitcoin's Lightning network, which would see fees of around $0.0003.

With USDt, Tongans, as well as all others who send money back to their families, can receive far more of their remittances, which can significantly improve their quality of life and contribute to the economic development of their country.

Let's look at how Tether’s stablecoin offerings offer stability to those living in unstable situations.

Stability

As Adanna's story demonstrated, inflation is a painful reality for countless individuals worldwide, particularly those residing in nations with unstable economies. However, while significant inflation was once only a problem in developing nations, over the last two years, inflation rates have doubled in 37 out of 44 advanced economies. That means, as of October 2022, 81 countries are now reporting double-digit inflation. That's nearly half of all inflation-reporting countries!

To illustrate the effect of double-digit inflation, a 10% inflation rate, as experienced by Europe in October 2022, would mean a 61.5% loss of purchasing power over ten years.

Figure: Inflations Effect On Purchasing Power

Inflation not only leaves millions struggling to keep up with the rising costs of everyday goods and services, but it also erodes their purchasing power, making it increasingly difficult to save money for the future. Moreover, it often hits the most vulnerable the hardest, including low-income families, retirees on fixed incomes, and individuals with limited access to financial services.

Once again, this is where Tether’s stablecoin offerings can make a significant difference.

As their stablecoins are pegged to the value of an underlying asset, such as the US dollar or gold, their price is relatively stable compared to other currencies experiencing rampant inflation. As a result, they offer a viable alternative for people living in countries with unstable currencies. They provide these individuals with a way to move their money into a currency that is not subject to the same inflation rates as their local currency. This can help them maintain the value of their savings and protect themselves from the erosion of purchasing power caused by inflation.

However, this begs the question: What about when currencies like the US are experiencing elevated inflation?

On top of USDt pegged to the USD, Tether offers XAUt—backed by gold—offering an even more robust alternative for people looking to escape high inflation rates.

Gold has been a trusted store of value for centuries, thanks to its scarcity and price stability. However, until recently, it was not possible to use gold as a means of digital payment. XAUt, backed by gold, solves this problem by providing a method of transacting in gold without the need for physical ownership. As a result, people can protect their purchasing power regardless of whether it's their currency or the USD experiencing high inflation.

You may say: But what about e-gold in the 90's?

First, eGold's operational and reserve structures were highly centralised and lacked the transparency of modern stablecoins like XAUt. Consequently, doubts emerged regarding the genuine gold backing supporting eGold tokens.

Second, eGold made its debut during a period when the cryptocurrency market was considerably less developed. Consequently, it grappled with achieving widespread recognition. These combined challenges resulted in eGold encountering significant regulatory obstacles and legal complications, ultimately leading to its downfall.

In contrast, products like XAUt have since surmounted these obstacles, benefiting from enhanced cryptocurrency regulatory frameworks, the wisdom gained from past failures, and a commitment to heightened transparency.

This makes gold-backed stablecoins a safe and reliable option for those looking to protect their wealth from inflation or during periods of economic uncertainty.

Ultimately, stablecoins offer a compelling solution for people living in countries with instability or high inflation. By providing access to currencies that are more stable or by allowing for transactions in gold, stablecoins offer a way for people to protect the value of their savings and escape from the negative effects of inflation. As more people become aware of the benefits of stablecoins, their popularity will likely continue to grow as a means of providing financial stability in an uncertain world.

Improved Usability

Given everything we have touched on so far, I have a feeling you’re starting to grasp how stablecoins offer increased usability over traditional currencies. But to make sure, let's beat the drum a little more. Tether’s stablecoin offerings have revolutionised the world of finance by offering a level of usability that traditional fiat currencies simply cannot match.

What do I mean by increased usability? Let's dive into some of the primary benefits and explore why their stablecoins uptake is growing rapidly.

Firstly, self-custody allows us to take ownership of our money without relying on centralised banking services. This means we have complete control over our funds and can access them whenever we need to, without the need for a middleman. No more waiting for our bank to clear a transaction or worrying about our account being frozen for no reason— with stablecoins, we are in charge. That said, we haven't completely removed centralised oversight by taking self-custody. Most stablecoins, including Tether’s, are issued by centralised companies built upon centralised blockchains such as Ethereum and Tron. Therefore, we put an inherent level of trust in these companies and systems.

Secondly, given that stablecoins, such as USDt and XAUt, are digital in nature, we can transact digitally, 24/7. No more fretting about bank opening hours or delays caused by different time zones— with stablecoins, we can transact whenever it suits us, from wherever we are in the world.

Reduced fees, as discussed above, are another major advantage of Tether’s stablecoins. Unlike traditional fiat currencies, USDt, as well as any of their other offerings, have fewer intermediaries involved in each transaction, which means we retain far more of our purchasing power— with stablecoins, we get to keep more of what we earn.

Finally, stablecoins offer reduced oversight, which means we have greater freedom to direct our money where we see fit. Unlike traditional fiat currencies, which are subject to all sorts of regulations and restrictions, stablecoins are cash-like, meaning far fewer intermediaries are involved in a transaction. This gives us greater freedom to move our money around more easily without having to worry about government oversight or red tape.

Overall, Tether’s various stablecoins offer a level of flexibility and freedom that traditional fiat currencies simply cannot match. With self-custody, digital transactions, reduced fees, and reduced oversight, it's no wonder that more and more people are turning to their stablecoins as a safe and reliable way to transact and store wealth.

Increased Bitcoin Adoption

Last but not least, Tether is playing a vital role in increasing Bitcoin adoption by acting as a bridge between traditional banking and the decentralised, trustless and permissionless rails of Bitcoin.

Before the advent of stablecoins, like USDt, transacting in and out of bitcoin was a complex and risky process. We had to either find someone willing to swap their bitcoin for our money or locate a Bitcoin-friendly bank or exchange. This made it challenging to purchase and sell bitcoin, especially if we lived in a jurisdiction that was hostile towards this magic internet money. And even if we found a way to transact in and out, we had to rely heavily on the traditional banking sector and trust that they wouldn't freeze our account or impair our ability to buy or sell bitcoin.

With the rise of Tether’s various stablecoins, the situation has changed. USDt and XAUt now offer a reliable digital medium of exchange that connects the traditional banking rails to the decentralised and trustless rails of Bitcoin. By using these stablecoins, individuals can now transact in and out of bitcoin with ease and without having to move back onto the traditional banking rails. This has led to increased adoption of Bitcoin, as people can now transact in and out without worrying about the barriers imposed by the traditional financial system.

For example, suppose a user wants to buy bitcoin. In that case, they can simply purchase USDt on an exchange and then use the stablecoin to purchase bitcoin directly, eliminating the need to transfer funds through a bank. Alternatively, if they need to sell bitcoin, they can exchange it for USDt without having to convert it back to their local currency.

With this in mind, stablecoins are changing how we transact with sovereign assets, like Bitcoin, by providing a seamless and easy-to-use bridge between traditional banking and the decentralised digital world. As the adoption of stablecoins continues to grow, we can expect to see even greater adoption of Bitcoin as more people realise there is no need to reenter the traditional banking world, given the usability and digital nature of stablecoins.

In conclusion, Tether’s stablecoin offerings aid financial freedom and security for not only everyday individuals but also those living in remote or unstable areas with limited access to reliable banking services.

Take, for example, Adanna's story, which illustrates how USDt can help people like her escape their quickly deteriorating local currency and have more control over their money without ever having to worry about currency instability or the fact that USDt offers a crucial solution for the unbanked population, enabling access to a digital currency, which empowers individuals who previously lacked such opportunities.

And if that wasn't enough, these stablecoins not only increase the usability of traditional currency, they help reduce the costs associated with remittances, allowing individuals to send money back to their loved ones without incurring high fees.

Overall, stablecoins, like USDt and XAUt, have the potential to transform the lives of billions by offering them access to inclusive and much-needed financial services.