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Years of regulatory uncertainty surrounding Tether might be mitigated by renewed investor confidence if a new USDT insurance procedure takes momentum.
While the value of stablecoins such as Tether (USDT) and USD Coin (USDC) is intended to be pegged to another asset, such as the US dollar, the crypto industry has been concerned for years about the possibility of a major depegging — particularly in light of US regulatory concerns about Tether, which has a current market capitalisation of more than $63 billion.
Now, one business plans to provide discretionary coverage for investors against that eventuality, and Tether is supporting the move.
Bridge Mutual attempts to reduce the risk of money loss due to hacked or exploited smart contracts, exchange hacks or theft, stablecoin price collapses, and other digital asset weaknesses.
In theory, stablecoin insurance is simple. The policyholder can submit a claim if a stablecoin falls below its peg for a specified length of time. Oracles examine the stablecoin’s current price and then pay the investor the difference between the current price and the peg — but in a separate stablecoin.
“Smart contract vulnerabilities have become a massive risk in decentralized finance, and they are a leading cause in the loss of millions of dollars in consumer funds,” said Paolo Ardoino, CTO of Tether. “With the introduction of Bridge Mutual, we hope to guard against future hacks and build more trust in DeFi products.”
Tether has been quick to offer financial support as Bridge Mutual works towards a decentralised governance architecture. The stablecoin issuer has set aside $500,000 for token purchase, as has Bitfinex, the cryptocurrency exchange that is owned by Tether Limited. These tokens should guarantee that both firms have a stake in the governance of Bridge Mutual.
Mike Miglio, Founder of Bridge Mutual, explained that “Tether and Bitfinex have already shown great support to the project by connecting us with many other esteemed projects that have now become our partners, and they have also committed to helping us market Bridge Mutual, improve the design, and integrate it into other platforms and systems.”
Policyholders deposit their tethers into pools to use as collateral, and in exchange for their stakes they can also share in profits from the platform and earn yield, according to Miglio.
“Billions of dollars of volume a day are moved to and from stablecoins, with people and institutions trusting implicitly that the value of a stablecoin will remain stable,” continued Miglio. “If coverage for stablecoins was readily available and easy to use, everyone would be able to increase their exposure to the cryptocurrency market without losing sleep over whether all of the value they have parked in stables could drop to zero overnight.”