History Repeats Itself for Tether USDT
Tether has a history shrouded in secrecy and attendant doubts about its legitimacy as a stablecoin. Stablecoins serve to minimize the volatility typically experienced in cryptocurrency markets. Stablecoins such as Tether claim to have the backing of the US dollar (USD) and other assets. Tether has been used in the past for various purposes including as a medium of money transfer on exchanges that do not take physical USD.
More recently, Tether’s website shows a change to its initial claims of being 100% backed by the dollar. This is a concern which puts into question how safe one’s investment with Tether really is. As opposed to before, its website now says that its reserves which Tether is pegged against may or may not include other assets other than the US dollar.
This opens up what could eventually be a can of worms for not only Tether but also holders of Tether. The vague “other assets” puts into question the stability of Tether. If it is backed in part by gold, for example, the rate at which the value changes could be faster than for the supposed USD and other assets it claims to be backed by. If gold was to depreciate, other risks could arise.
Not only does this put into question the character of the team behind Tether but it also raises questions about the liquidity of the stablecoin. Tether’s executive board is constituted of several players including BitFinex, which was accused of using the cryptocurrency to artificially increase the price of bitcoin.
In 2018, claims arose of its USD holding. Tether SAID its bank deposits of $2.55 billion were confirmed by a law firm. Yet, doubts still persist over the true nature of its reserves. The writing in many respects is on the wall. It lost its peg and traded below the USD by approximately 10% on some exchanges.
Its market cap fell to $2.2 billion on the back of 250 million USDT of circulating supply being pulled away. In August of 2018 USDT had a circulating value of nearly $2.9 billion before the fall-a 25 percent drop caused partly by its reduction in price below the dollar.
The month of October 2018 was filled with multiple exits by Tether. Tether took 250 million USDT out of circulation after payments of 50 million and 200 million USDT were sent by Bitfinex to its treasury address.
Bitfinex’s close links with Tether may be a little too close for comfort. Paradise Papers showed Bitfinex’s Devasini and Potter established Tether back in 2014. With regulations lagging behind the crypto sphere this may seem like a grey area more than anything. However, considering the influence which both entities have had over each other, there is a cause for concern.
Still, Tether is a top ten cryptocurrency on Coin Market Cap and reputed as the top stablecoin. Its price at the moment is $1.01. One could assume a new leaf has been turned but it wouldn’t be a surprise if history repeats itself. Many in the crypto community have little faith in the coin. It hasn’t crashed but it hasn’t “mooned” either.
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Calvin Ebun-Amu is passionate about finance and technology. While studying his bachelor’s degree, he found himself using his spare time to research and write about finance. Calvin is particularly fascinated by economics and risk management. When he’s not writing, he’s reading a book or article on risk and uncertainty by his favourite non-fiction author, Nassim Nicholas Taleb. Calvin has a bachelors degree in law and a post-graduate diploma in business.