Why Data Analysis Shows USDT as “Extremely Healthy”

By Andy Hao

                                           

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Stablecoins are supposed to offer some stability in the volatile cryptocurrency market. They are often pegged one-to-one to a currency like the US dollar, and thus are particularly useful on exchanges that don’t allow trading in fiat currency. Last year, global trading volume in stablecoins rose from $12.5 billion the year before to around $82 billion, according to Chainanalysis.


Yet despite this promise of stability, the leading stablecoin, Tether (USDT), has been the source of much controversy. For starters, investors have been skeptical about whether Tether is really backed entirely by US dollars; a claim the company has recently walked back. Moreover, there have been allegations of wrongdoing: in April we learned that the New York State Attorney General had accused iFinex, Tether’s parent company, of using its reserves to cover up $850 million in missing funds.


And yet, according Longhash’s new data product, which rates the health of various stablecoins, USDT’s health score is the highest of every token we rank. At a 90 out of 100, we rank USDT as “extremely healthy.” Why?

   

To understand, we first need to explain how we arrived at our stablecoin scores. Our stablecoin scores are based on the five metrics below.

   

Stability reflects the price fluctuation of stablecoins. Generally, the closer a stablecoin’s value stays to the fiat currency it is pegged to, the higher its stability score.


Market acceptance is based in part on a stablecoin's trade volume on exchanges and the number of trading pairs available using the stablecoin. Higher numbers in these areas indicate greater market acceptance.


Risk resistance reflects a stablecoin's ability to resist systemic risks, factoring in aspects like its dispersal across exchanges.


Growth reflects the long-term performance of a stablecoin: its relative transaction volume and market cap.


Practicality reflects a stablecoin's usage outside of exchanges. If a stablecoin has uses beyond trading — for example, if it can be used to make payments or is accepted in ICO fundraising — its practicality is greater.


USDT scores well on every metric except practicality. At the time of writing, USDT was trading at almost exactly $1 USD, which we consider stable. Its market cap is over USD $3 billion, far larger than any other stablecoin.


The second-highest ranking coin is GUSD, which currently has a score of 78. GUSD performs better than USDT in both stability and practicality, but USDT scores higher in market acceptance and growth.


Risk resistance is another important metric, especially in the case of USDT. One thing we know about USDT is that it is able to weather a storm — or at least it has been so far. The New York Attorney General’s April accusation, which attracted dramatic media headlines, is a very good example. The charge initially resulted in sharp fluctuations in USDT’s premium and price, which was reflected in our April score. But by early May, as we reported here, USDT was close to its target valuation of $1.


USDT also  scores well on another risk resistance metric: the distribution of stablecoins across various exchanges. Concentrated token distribution indicates that most stablecoins are in one or a limited number of exchanges. This raises the risk level, because it means that a coin is more vulnerable if a particular exchange decides to interfere with its price or supply.


Make no mistake, USDT doesn’t score spectacularly on this metric. We currently classify it as “concentrated,” as more than half of its distribution is on Binance. But if you look at our charts you will see that the four other coins — GUSD, PAX, USDC and TUSD — are actually much more concentrated than USDT.


Could the actions of iFinex eventually cause USDT to crash? It’s possible. But at least according to the data that we currently have, we think USDT is in extremely good health.


Here’s a link to LongHash’s stablecoin livechart and livechart explainer video.




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