What happens when i buy USDT with a weaker currency?
What happens when i buy USDT with a weaker currency?
Forgive me if this is a supid question. However ill continue.
This can apply to any stablecoin, but let’s say I buy USDT with some good old US dollars. From what I understand, It get’s stored in the The stablecoin issuer’s reserves in the bank, and you get a minted version of a stablecoin, which in itself is a representation of your money on-chain (correct me if I’m wrong).
Then what if i buy USDT with the Nigerian Naira, or the boliviano or the Zimbabwe dollar? I live in nigeria, and I’m sure that i can buy Some USDT with Naira, at a rate that is even better than the NGN-USD price at any Bank (rates fluctuate by a few naira based on bank).
And I’ve also heard about a few crypto currencies like the Tienda Crypto offer US stablecoin services to Latin America. You can read about it here. I don’t really understand how it works, but how were they able to create a US stablecoin when their main market is for Latin America? wont all their reserves be full of highly inflationary currency?
When you buy USDT with a local currency like NGN, the platform converts your NGN to USD and then issues you USDT, which is backed by USD reserves. Local currencies are used for the purchase, but the reserves for the stablecoin are held in stable currencies like USD.
Usdt is pegged 1:1 to usd so if you buy usdt you essentially hold dollars.
If your base currency depreciates against the dollar when you switch back you will get more of the original