According to user reports circulating on social media on January 10th, Crypto.com plans to withdraw Tether (USDT) from trading in Canada, effective January 31st. The exchange has told its clients that if they do not withdraw or transfer their USDT assets by the deadline, their Tether will automatically convert to USD Coin (USDC) and may incur a refund fee if USDT deposits are made from external wallets after this hold period, and there may not be a refund Money is possible in some cases, the exchange warns customers.
Not all cryptocurrencies are volatile. In fact, some of them are specifically designed to maintain a fixed price: stablecoins. In an industry where coins and tokens can collapse overnight, there is a huge demand for coins that blend the advantages of a blockchain with the ability to track a more stable value.
crypto dot com to delete USDT pic.twitter.com/3KD0gJlMkE
– chortly (charlestrussel) January 10, 2023
In August, Crypto.com announced that the Ontario Securities Commission had accepted the company’s undertaking to pre-register its operations in Canada. As part of regulatory requirements, cryptocurrency exchanges operating in the Canadian province of Ontario are prohibited from listing digital assets that are prohibited by the Ontario Securities Commission (OSC), which includes USDT. Similarly, Coinsquare, a cryptocurrency exchange regulated by the Investment Industry Regulatory Commission of Canada (IIROC), does not currently include USDT among its available-for-trading assets.
Tether is a stablecoin cryptocurrency issued by Tether Limited. Tether tokens are assets that move across the blockchain as easily as other digital currencies, but are tied to real-world currencies on a 1-to-1 basis.
Focus on the stablecoin
A stablecoin is a cryptocurrency pegged to another asset, such as fiat currencies or precious metals. Stablecoins are designed to maintain a relatively stable price so that users can avoid the volatility risks that are common in crypto markets. There are three types of stablecoins:
- backed by fiat currencies;
- Backed by cryptocurrency.
- and algorithms.
Fiat-backed stablecoins, such as BUSD, are pegged to traditional fiat currencies. They maintain this peg by holding reserves of fiat currencies that can be exchanged for stablecoin. Crypto-backed stablecoins (such as DAI) increase the collateral of their tokens to account for cryptocurrency price volatility, and algorithmic stablecoins control supply without the need for reserves.
Due to their practicality and large market capitalization, regulators are starting to pay more attention to stablecoins. Some governments even create their own to maintain control of the currency.
Stablecoins are back fiat currency
A stablecoin backed by the Ministry of Finance holds a fiat currency, such as the US dollar or the British pound, as a reserve. For example, all Tether tokens are pegged 1 to 1 to a corresponding fiat currency (eg $1 ₮ = $1) and backed 100% by Tether reserves. Users can then convert fiat currencies into stablecoins and vice versa at the fixed rate. If the price of the token deviates from the base fiat currency, the arbitrators will quickly bring the price back to the fixed price.
BUSD trades another stablecoin above the dollar for example. Arbitrageurs convert USD into BUSD and sell it at a higher rate in the market. This increases the supply of BUSD for sale and returns the price to the dollar. If BUSD is trading for less than a dollar, the arbitrators buy it and convert it into US dollars. This increases demand for BUSD and raises its price by $1.
Stablecoins backed by cryptocurrencies
Cryptocurrency-backed stablecoins work similarly to fiat-backed stablecoins. But instead of using the dollar or another currency as a reserve, cryptocurrencies are used as collateral. Since the cryptocurrency market is highly volatile, cryptocurrency-backed stablecoins usually increase collateral reserves to hedge against price fluctuations.
Crypto-backed stablecoins use smart contracts to manage the mint and burn. This makes the process more reliable as users can verify contracts independently. However, some stablecoins are run by decentralized autonomous organizations (DAOs), where the community can vote for changes to the project. In this case, you will have to get involved or simply trust the DAO to make the best decisions.
Let’s take an example. To mint $100 of DAI fixed in USD, you would need to save $150 of cryptocurrency at a rate of 1.5 times collateral. Once you have your DAI, you can use it as you wish. You can transfer it, invest it or keep it. If you want your collateral back, you will have to pay 100 DAI. However, if your collateral falls below a certain collateral percentage or loan value, it will be liquidated.
When a stablecoin is below $1, incentives are created for holders to hand over their stablecoin in exchange for collateral. When the value of a stablecoin is above $1, users are incentivized to create the token, which increases the supply and lowers the price. DAI is one example, but all stablecoins rely on a combination of game theory and chain algorithms to incentivize price stability.
Algorithmic stablecoins take a different approach by removing the need for reserves. Instead, algorithms and smart contracts manage the supply of tokens. This form is rarer than crypto- or fiat-backed stablecoins and more difficult to manage.
Essentially, an algorithmic stablecoin system will reduce the supply of tokens if the price drops below the fiat currency it tracks. This can be done through the locked bet, burn, or takeover. If the price exceeds the value of the fiat currency, new tokens are traded in to reduce the value of the stablecoin.
Tether tokens are called stablecoins because they provide price stability since they are pegged to fiat currency. Thus it offers traders, traders and funds a low volatility solution for exiting their positions in the market.
All Tether tokens are pegged 1 to 1 with a corresponding fiat currency (ex. 1 USD ₮ = 1 USD) and backed by 100% of Tether reserves. As a company, Tether Limited publishes a register of current reserve assets. Historically, the company claimed that every coin was backed by US dollars, but as of March 14, 2019, it changed its support to include loans to affiliates.
Crypto.com, the cryptocurrency platform, announced on October 15 last year that it had signed a pre-registration undertaking with the Ontario Securities Commission (OSC) in Canada.
This signature, recognized by the OSC and all Canadian jurisdictions through a joint initiative of the Canadian Securities Administrators (CSA), makes Crypto.com the first global cryptocurrency platform to currently operate under this regulatory obligation in Canada.
Under the terms of the agreement, Crypto.com agrees to work with OSC to offer a range of products and services in full compliance with Canadian regulations. This compliance is based on the current regulations of Crypto.com in Canada under the Financial Transactions Analysis and Reporting Center of Canada (FINTRAC).
In making its decision, the OSC never explained its reasons for banning Tether. However, a document released on February 17, 2021 indicates that the only US dollars Tether possesses, purportedly as collateral for approximately 442 million tethers in circulation, is approximately $61 million deposited with the Bank of Montreal. Meanwhile, experts have sometimes questioned the validity of Tether reservations and reviews.
Currently, all potential cryptocurrency exchanges must register with IIROC if they want to do business in Canada. Exchanges such as Binance, Bybit, and Huobi have had issues with OSC in the past regarding their regulatory status. In response to this development, a Tether spokesperson commented:
Canadian securities managers and member securities commissions began issuing guidance in 2021 regarding the requirements of regulated exchanges on the issue of supporting stablecoins, at that time particularly in relation to USDt. This topic has just come up after Crypto.com’s need to comply with Canadian regulatory requirements.
The spokesperson also explained that while Canada is not a primary market for Tether, the company will ensure that its products can be used across borders. However, we can see how Canada is moving more aggressively on crypto laws than most other countries. We believe in promoting a more equitable, open and forward-looking approach to accessing financial services.
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