Recently academics at the University of Texas, Austin published a paper suggesting that Tether USD (USDT) was used to manipulate the price of Bitcoin, leading to its massive boom in December.
Apparently, Tether USD is a cryptocurrency that is supposed to be backed 1-to-1 with fiat USD on the exchange Bitfinex. However, Bitfinex, under its terms and conditions doesn't allow anyone to audit its fiat reserves. This has led to the suspicion that Bitfinex doesn't actually have USD for every USDT in circulation. So if you had a bunch of USDT and want to see its value in your bank account, there's a chance Bitfinex won't buy it from you! This means there's a chance your USDT will remain stuck that way.
Yet, the price of USDT has remained stable. Here's why.
You cannot even set the price of USDT on the exchange!
This had me thinking. In order to create a stable-coin, all that an exchange has to do is create its own cryptocurrency and then somehow come to an agreement with as many other exchanges as possible to not let its users change its price. If enough exchanges agree, the price of that stable-coin will automatically normalize to the price these exchanges have set. There's no need to back anything, with anything at all.
Am I missing something here? This whole idea of creating a stable-coin seems so simplistic, yet scammy to me. Would this work? What do you think?