Dollar amounts in a litigation complaint and headlines about "sued for $X million!" are not usually that meaningful; remember your Gell-Mann amnesia.
That just suggests that "audited" and "100% reserve" are not the most important features to people using stablecoins. What is more important is having a deep market on Binance, which is where most BTC <-> stablecoin trading happens.
Despite these terrible news articles, which are indeed reporting accurately that there are terrible flaws in Tether, you can still trade Tether for $1 right now. A hundred dollars worth of Tether is still more valuable than a hundred dollar payment made via a credit card.
It sounds like you are arguing that being popular is what matters more to being popular
Let's go for a more specific example. Let's say that you hold one bitcoin on Binance, and you believe the price of bitcoin will go down today. You would like to exchange your bitcoin for dollars, and then tomorrow, exchange your dollars back into bitcoin.
Ideally you would just use plain old US dollars. But since it's crypto, you can't. What you can have is a stablecoin.
So which stablecoin should you use? There are two costs to using a stablecoin.
Cost #1 is that when you exchange, you won't get the perfect rate. You'll have to pay some fee, and the precise exchange rate you get will depend on the liquidity of the market.
Cost #2 is the chance that this stablecoin collapses in value while you're using it.
For Tether, in my opinion cost #2 is high. All these dubious stories about the underpinning of Tether are true. That means the risk it collapses tomorrow are higher than the risks that other stablecoins collapse tomorrow.
However, cost #1 is probably lower for Tether than it is for any other stablecoin. Because there are more traders operating in Tether, you get a better exchange rate.
This is why Tether isn't just hype, it is providing real value to people through being the most popular stablecoin.
Would we be better off in a world where the most popular stablecoin also had a solid financial backing? Yeah, I think so. But that isn't the same as saying that Tether has no utility today.
Because unbanked cryptocurrency exchanges are essentially in the business of money laundering. A service that facilitates illegal transactions has obvious value to any libertarian or criminal, but I’m not sure that counts as “providing real value to people.”
I understand why a money launderer wants to trade on an exchange which does not let them withdraw USD. But why would a normie (who, at some point, wants USD) want to do so?
Aren't stories [1] about withdrawals being delayed or unreasonably conditioned abundant?
Exchange it for what?
If you exchange it for a record entry for anything (whether dollars or Bitcoin) in a Binance (or affiliate's) account, you're exchanging one IOU for another. Given most USDT trades on Binance and its affiliated entities, this loops right back to the withdrawal problem.
A "stable" coin that cannot be readily redeemed and is not fully reserved is a Ponzi scheme with extra steps.
Extra steps, and the delay they introduce, may be all a ponzi needs to sustain itself sufficiently to permit quiet exits. That the market will eventually be consistent is, alas, not the current manipulators' problem.
There are plenty of valid criticisms of USDT. Saying that it is hard to exchange 1 USDT for a dollar's worth of Bitcoin that you control is not one of them.
Until it's in your wallet, it's an IOU. And Binance has had issues with Bitcoin withdrawals, too. (Not to mention, they seem to lose their cash and coins to hackers [1] and fraudsters once a quarter.)
There is no independent, trusted marketplace where USDT trades in material volumes. And we now know that Tether previously lied about its dollar reserves. Continuing to trust them is delusional at best.
[1] https://www.bloomberg.com/news/articles/2019-05-08/crypto-ex...
The hard part is exchanging USDT (or bitcoin) for actual money since banks don't want to touch crypto with a 10-mile pole.
People here seem to misunderstand what USDT is used for. It's not to invest in.
It's used to trade against BTC at exchanges which do not have access to USD markets. The gambl^Wtraders there probably couldn't care less about how collaterized it is. The threat model is and has always been that Binance or Poloniex or whatever they're called disappears with your money, tethered or otherwise.
If you had 5M USDT, how much USD do you think you'd get if you tried to liquidate that position on that exchange right now?
If you push the price down with $5M, it will jump right back up.
100 units of USDT is worth $100 only if you can get someone to trade it to for that. For the moment, you actually cannot -- you have to trade it through BTC or one of the other crypto coins that are actually paired with USD first.
That is a San Francisco based exchange with USD deposits and withdrawals. There's been a couple times where tether has been under a dollar during times of high uncertainty (and I think relatively low liquidity of this trading pair), but generally you can trade tether for USD and withdraw here.
How then do you explain DAI?
It seems to me that people don't want an "audited, 100% reserve stablecoin", they want an algorithmic, decentralized stablecoin that can't be screwed up because somebody seized the "100% reserve."