2. All this sounds good. So, what’s the problem?

Some of the biggest players in the stablecoin market have been accused of lacking transparency.

Tether is the seventh-biggest cryptocurrency in the world at the time of writing — and the high-profile stablecoin has a market cap of more than $4 billion. But its simple promise that every unit is “100% backed” by United States dollars has been brought into question in recent years — and legal issues have been on the horizon.

Crypto critics have long called for Tether to subject itself to an independent audit to verify the veracity of its claims, but such checks have not been forthcoming. Recent changes to the terms on its website also suggest that the stablecoin is being backed by other assets. It says this may include receivables from loans issued. Confirmation that Tether is running on a fractional reserve later came from the stablecoin operator’s lawyers, who revealed in court documents that the company only has enough cash to back 74% of its supply. “A small amount of reserves” are also in Bitcoin, prompting a New York Supreme Court judge to ask why Tether had placed its assets in the same volatile currency it was meant to modulate.

All of this comes as an ongoing case by the New York Office of the Attorney General alleges that $850 million of Tether’s funds were used to cover losses at Bitfinex, an affiliated exchange — affecting confidence in centralized stablecoins.

Some decentralized stablecoins have also been running into difficulty. DAI — an ERC-20 token pegged at 1:1 with the U.S. dollar, with an exchange rate maintained by overcollateralizing with Ether (ETH) — has struggled at times to maintain its $1 price point.