Tether — the most popular stablecoin
We know very well that investing involves risk and cryptocurrencies are an asset with very high price volatility. The greater the risk of capital loss. However, in order to stop the speculative nature of cryptocurrencies and reduce their volatility, their value began to be tied to assets of a different class. This procedure can be compared to linking FIAT currencies to gold. This is how stablecoins came about. Their concept is not only right but also allows for the introduction of many applications for cryptocurrencies. For example, it is easier to use a stablecoin when exchanging exotic cryptocurrency pairs or to invest your capital in them.
Tether (USDT) was established in 2014 and is issued by the private company Tether Ltd declaring full coverage of the supply in USD (so-called Proof of Reserve). It is a centralized token and as a stablecoin it promises to produce a token worth one dollar for every dollar deposited. It is tied to its exchange rate and always tends to one dollar. Tether’s technical side is based on the Bitcoin blockchain on the Omni Layer platform. Some tokens also exist in the form of ERC20 contracts, which are created on the basis of the Ethereum blockchain. Most of the issued coins go to cryptocurrency exchanges. Tether does not have a limited supply because it is linked to the amount of financial reserves held in dollars. On the project website, it is possible to exchange dollars for USDT and vice versa.
Since the beginning of Tether’s existence, there have been controversies regarding its operation. First of all, centralization and one exclusive token issuer. After all, cryptocurrencies are supposed to be decentralized and not subject to supervision. Moreover, Tether Ltd. is registered in the British Virgin Islands and a journalistic investigation has shown that it has ties to one of the Bitfinex cryptocurrency exchanges. On this exchange, the largest Tether trading lasted for a long time. Now the exchange no longer offers this service.
Another accusation against the creators of this stablecoin is the strange machination that was used during the audit, which could unambiguously determine whether the actually issued coins are secured in US dollars. This behavior is quite disturbing considering that tokens with such a high capitalization have been issued. Namely, the money corresponding to the value of the issued USDT was in the company’s account, but it had been transferred there the day before. And the transfer was made by the Bitfinex exchange. After this information, instead of suffering the consequences, Tether lost 9% of its value only to recover it quickly.
In 2021, the New York prosecutor forced the company to audit, which showed that the actual cash is only 3.87% of $ 62 billion. The other collateral is receivables. In addition, the company’s vault contained a deposit that should not have been there: other cryptocurrencies, precious metals, corporate bonds.
It is all the more puzzling that Tether does not want to disclose the components of its portfolio. In the event that bonds lose significantly in value, the stablecoin will cease to be a safe haven for investors’ assets. And above all, it is worth noting how closely cryptocurrencies and the classic financial system are related to each other, no matter how much we would like them to work separately.
