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Why choose USDT as a settlement currency?
Practical advice for Brokers and Operators
USD Tether for operators and brokers
Fiat on/off ramp has always been a challenge
Since the start of the Bitcoin era, traders' and holders' most common question is 'How do I buy crypto?' And even though more than 10 years have passed since Bitcoin first entered the scene and billions of dollars have been moving every day ever since, this simple question still remains on everyone's lips. It's not easy for most of the traditional banking systems or EMI institutions to provide you with any access to cryptocurrency markets. There are a few that are doing that, but it all comes at a certain cost. And when we look at credit card purchases the cost is even steeper, reaching up to 10%.
As few merchants and end-users are willing to pay this bill, a lot of credit card on-ramp companies hide their true cost in the spread. You can read more about that here.
At Finrax switching your crypto deposits to a stablecoin and back to Bitcoin (and 20+ other coins) is fairly simple and fully automated. While banks take days to move money with us, you can reduce your risk exposure to a minimum by choosing a stablecoin (USDT) as a settlement currency. This allows us to stay compliant when it comes to the fiat holdings as those are essentially segregated in clients' funds accounts, while the crypto holdings stay safe in our multi-signature wallets. Finrax is regulated and holds licenses for crypto custodian services.
Why do I need stablecoin?
Our clients' feedback shows that merchants dealing with fiat don't want to mix their regular business activities with crypto. Merchants always want to know the true value of what they've received. What's more, if the merchant decides to store value in Bitcoin or other cryptocurrencies, they need to build a risk engine in order to always evaluate the risk exposure in crypto. This way they are able to sustain enough value in their systems to make sure there's the same amount as in the clients' funds account. Let's take a look at two examples when a business decides to store value in Bitcoin compared to USDT (stablecoin pegged to the US Dollar price).
Imagine the following scenario:
Deposit time (Bitcoin is at $8333)
The user wants to receive $1000 in your system and therefore is required to deposit 0.12 BTC. When they receive the $1000 in their account balance, they start using your service bets or trades and, let's say, 1 week later their remaining balance is $800. In other words - the business needs to have $800 worth of something in order to make the payout. For the sake of this example, we'll not introduce buffers in other financial systems.
During the week of usage the Bitcoin price dropped from $8333 to $6500. Now the net value of your Bitcoin is 0.12*6500 = $780 due to the long position you held. In order to make sure you can cover the payout of the user, you'll need to top up the balance in your account and buffer the required amount of Bitcoin to make the payment.
Assets/Time
Deposit received
Usage of service
Withdrawal request
Bitcoin account of the business
0.12 BTC
0.12 BTC
800/6500=0.123 BTC
USD account of the client
$1000
$800
-$800
Balance
-$1000
+0.12 BTC
-$800
+0.12 BTC
$0
-0.003 BTC
Of course, there are multiple ways of how the Bitcoin price could be offset right after the deposit and hedge your long position to reduce the risk, but this shifts the regular business activity into a completely different product.
Now let's review the same example if the client has decided to allocate their assets in USDT.
For simplicity's sake we'll use the same numbers.
The user wants to receive $1000 in your system and therefore is required to deposit 0.12 BTC. The Bitcoin is automatically converted to USDT. Your business balance is now 1000 USDT = $1000
The user receives their $1000 in the account and starts trading or placing bets. Then, let's say after 1 week their remaining balance is at $800. That means the business needs to have $800 worth of something to make the payout. So how would the table above look like in the example with USDT?
Assets/Time
Deposit received
After 1 week of service
Withdrawal request
Bitcoin account of the business
0.12 BTC
0 (exchanged to USDT)
800/6500=-0.123 BTC
USD account of the client
$1000
$800
0
Balance
-$1000
+1000 USDT
-$800
+1000 USDT
$0
+200 USDT (800 USDT used to buy and send BTC)
In the example with USDT as a settlement currency, we clearly see that the Bitcoin volatility is removed right after the deposit is received. At Finrax, we hedge all your crypto payments right after a deposit is made. This ensures stable value and ability to better manage yours and your clients' funds. We audit our volatility on a monthly basis ranging at +/-0.018%. By making the most of the Finrax auto exchange on deposits and withdrawals you don't need to worry about your crypto exposure. This allows our clients to do what they do best without overcomplicating their payment flow. Furthermore, all deposits and withdrawals are reported in the currency of your clients' accounts to make it easy to reconcile for financial accounting and controlling purposes.
Have you found this article useful? Then make sure you also check out this article on how to setup your allocation ratio and gain a better understanding of the settlement/payout procedure.​
Or having any doubts or questions? So, contact us at [email protected] or book a call with a specialist https://calendly.com/finrax/30min​