USDT creator Tether is planning to launch a stablecoin pegged to the UAE dirham. Why? How stable will it be?
Tether’s launching of a UAE dirham-pegged stablecoin pursues several goals and has some potential benefits.
First, it will allow Tether to expand its footprint in the global stablecoin market and bolster its positions in the Middle East and North Africa (MENA) region.
Second, such a stablecoin could simplify international trade by reducing transaction costs and speeding up settlements for companies doing business with the UAE and neighboring countries.
Pegging to the UAE dirham, which itself is pegged to the US dollar, could provide some stability and protection from currency fluctuations. This could be attractive to traders and investors looking for an alternative to volatile cryptocurrencies. In addition, the launch of such a stablecoin will support the UAE’s ambition to become a hub for blockchain innovation and may attract more crypto projects and investments to the region.
According to Tether’s CEO, this is also an attempt to create an alternative to the US dollar in international trade, which may be especially relevant in the context of geopolitical changes and the aspiration of some countries to de-dollarize.
As for the stability of the new stablecoin, this will depend on several factors. Pegging to the UAE dirham, which, in turn, is stable against the US dollar, should provide some stability. Tether says that the stablecoin will be fully backed by liquid reserves, which should also enhance stability. Plans to obtain a license from the Central Bank of the UAE could increase trust in the stablecoin and its regulatory transparency.
However, some potential risks should also be borne in mind. Tether has had issues with the transparency of USDT reserves in the past, which may raise some red flags among investors. Overall, the cryptocurrency market remains volatile, and even stablecoins can experience fluctuations during periods of market turmoil. Additionally, global cryptocurrency regulation is still a work in progress, so this could impact the stability and adoption of a new stablecoin.