Everything you need to know about Tether

What is Tether?

Tether (USDT) is a cryptocurrency with a value meant to mirror the value of the U.S. dollar. The idea was to create a stable cryptocurrency that can be used like digital dollars. Coins that serve this purpose of being a stable dollar substitute are called “stable coins.”

According to their site, Tether converts cash into digital currency, to anchor or “tether” the value of the coin to the price of national currencies like the US dollar, the Euro, and the Yen.

Like other cryptos it uses blockchain. Unlike other cryptos, it is [according to the official Tether site] “100% backed by USD” (USD is held in reserve) i.e. every Tether is supposed to be backed by dollars kept in reserve in a 1:1 ratio (this being a big selling point and a potential problem in the otherwise rather untethered and decentralized crypto space).

With USDT you can, in theory, move into a coin that holds a stable value like USD… even when you are on an exchange that doesn’t deal in fiat! That is a big deal on its own, but it gets even better. Many exchanges also offer USDT as a trading pair, thus allowing you to buy coins with a coin that mirrors USD. That is very useful (especially when Bitcoin’s price is volatile).

However, everything good about Tether aside, Tether also presents some problems…

WHAT IS SUSPICIOUS ABOUT TETHER?

TETHER IS COMPLETELY CENTRALIZED

The company that controls and issues Tether is meant to hold US dollar reserves to back up all of the Tethers that have been issued — a little like the Federal Reserve backstops dollars with gold. In theory, Tether holders can sell one USDT back to Tether Limited for $1.

The model is 100% centralized because the company is in full control of the money supply and reserves. Because its US dollar reserve must be stored in regulated bank accounts, it is subject to government regulations.

2. CEO Of Tether is the CEO of BITFINEX!

Tether tokens are issued by Tether Limited, a company based in the British Virgin Islands according to the New York Times. Tether’s website says it is incorporated in Hong Kong, with offices in the US.

The company has many of the same management team as Bitfinex, the Hong Kong-based cryptocurrency exchange that is one of the biggest in the world. Jan Ludovicus van der Velde is CEO of both Bitfinex and Tether, and Philip Potter is chief strategy officer for both businesses, for example.

The most interesting thing is that the Bitfinex exchange, which, incidentally, controls the work of the company Tether Ltd, after the termination of cooperation with banks has incorporated and introduced the use of USDT, and managed to impose the dominance of USDT as the only stable coin for all other crypto exchanges.

3. NON-AUDITED

Prompted by a subpoena from US regulators in December 2017, Tether reacquired the services of Friedmann LLP to conduct an audit on it’s US dollar reserves. However, a month later, news broke that the Tether had parted ways with their auditors, meaning no audit results were ever disclosed.

That caused alarm and woke up the critics.

Even Charlie Lee, Litecoin founder twitted:

American accountant and auditor Abhishek Shah said that Bitfinex, the largest cryptocurrency exchange in the world, could well have the necessary reserves to back up Tether. Nevertheless, Shah believes pressure from the community is the only thing that will lead to a transparent audit:

“The Crypto community should come together and demand a complete independent audit of Tether.”

4. MANIPULATION OF BTC PRICE

Controversy has swelled around Tether, whose chief executive officer Jan Ludovicus van der Velde is also the CEO of Bitfinex, after volatility and rumors of Bitcoin price manipulation surfaced late last year. One persistent online critic, going by the screen name Bitfinex’ed, has written several very detailed essays on Medium arguing that Bitfinex appears to be creating Tether coins out of thin air and then using them to buy Bitcoin and push the price up.

More controversial claims have been found over social media in the past days, and one in particular stating that “130 Million USDT were just printed.

https://www.omniexplorer.info/address/1NTMakcgVwQpMdGxRQnFKyb3G1FAJysSfz” was pretty alarming.

5. WHAT THAT MEANS FOR THE MARKET?

If there is a problem with Tether, it could have wider knock-on effects for the cryptocurrency market as a whole due to its central role in many exchanges.

“The issue is that the volumes against Tether have been growing lately,” Greenspan said. “They’ve been above 10% of total volumes on bitcoin for a few weeks already.

“If there aren’t sufficient reserves in US dollars, then the price of Tether should not then be pegged to the US dollar and it’ll just be decided by the market.”

The fear is that a collapse in the price of Tether could also bring about a collapse in the price of bitcoin and other crypto assets that people have been trading with USDT.

Difference between Tether and other stablecoins

This table clearly shows differences between Tether and other stablecoins that unlike Tether uses crypto collateral (this includes MakerDao, Havven, and Coin Payment Processor — CP Processor (cPRO) & Stable Tokens+Supplements — crypto collateral adjustment)

So, do you believe in Tether?

If you are still unsure what to think, read these informative articles:

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