Why Russians Are Turning to Tether Amid Sanctions and Currency Crisis

The Russian rouble has been under pressure since the US and its allies imposed new sanctions on Russia over its military intervention in Ukraine. The rouble hit a record low of 103.5 per US dollar on Monday, February 28, 2023, losing more than 30% of its value since the start of the year. The sanctions have also restricted Russia’s access to global financial markets and foreign currency reserves, making it harder for the country to cope with inflation, debt payments, and economic slowdown.

As a result, many Russians have been looking for alternative ways to preserve their wealth and access the global economy. One of the most popular options has been the Tether cryptocurrency, a digital token that is pegged to the US dollar and backed by reserves held by its issuer. Tether is widely used in the crypto industry as a medium of exchange and a store of value, especially in countries with volatile or restricted currencies.

According to data shared with Reuters by CCData, a crypto analytics firm, trading volumes between the rouble and Tether spiked sharply on Monday, reaching $14.7 million, up from $3.9 million the previous day. This was the highest level since March 2022, when Russia invaded Ukraine and triggered another surge in rouble-Tether trading. Most of the trading took place on Binance, the world’s largest crypto exchange, which offers several rouble-denominated crypto pairs, including Tether.

The data also showed that the rouble accounted for 2.05% of all Tether trades worldwide on Monday, making it the sixth most traded pair with the stablecoin. This indicates that Russians are not only using Tether to hedge against the rouble’s depreciation, but also to participate in the global crypto market and access other digital assets.

The appeal of Tether for Russians lies in its stability, liquidity, and accessibility. Unlike the rouble, which is subject to exchange rate fluctuations and capital controls, Tether maintains a 1:1 parity with the US dollar and can be easily transferred across borders and platforms. Unlike other cryptocurrencies, which are often volatile and speculative, Tether offers a low-risk and high-reward option for traders and investors. And unlike traditional financial services, which are often costly and cumbersome, Tether can be accessed with a simple smartphone app and a crypto wallet.

However, using Tether also comes with some risks and challenges. One of them is the regulatory uncertainty surrounding crypto assets in Russia and other jurisdictions. The Russian government has been ambivalent about crypto regulation, issuing contradictory statements and laws over the years. In 2022, Russia passed a law that recognized crypto as property but banned its use as a means of payment. In 2023, Russia proposed a bill that would impose fines and jail terms for crypto transactions that violate the law. The US Securities and Exchange Commission (SEC) has also been cracking down on crypto exchanges and issuers, claiming that most digital assets are securities that need to comply with the same rules as traditional financial products. The SEC has sued several crypto companies, including Tether’s issuer, for allegedly violating the securities laws.

Another risk is the security and reliability of Tether and its issuer. Tether has faced several controversies and scandals over the years, including allegations of market manipulation, insufficient reserves, fraud, and hacking. Tether’s issuer has also been involved in legal disputes with regulators and banks in various countries, raising questions about its transparency and accountability. Although Tether claims to have full backing for its tokens and to undergo regular audits by independent firms, some critics and skeptics have challenged these claims and demanded more proof.

Despite these risks, many Russians seem to prefer Tether over other alternatives, such as gold or foreign currencies. According to a report by vice.com, some Russian traders said that they use Tether because it is easier to buy and sell than other assets, and because it offers more opportunities to profit from the crypto market. Some also said that they trust Tether more than the Russian government or banks.

Tether’s popularity among Russians reflects the growing demand for crypto assets in emerging markets, where people face economic instability, political uncertainty, and financial exclusion. As CCData’s analyst Bendik Norheim Schei told Reuters: “Tether is becoming increasingly important as an alternative financial system for people who don’t trust their own governments or central banks.”

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