Blog Opinion Tether: Investigating the Mystery Behind the Largest Stablecoin

Tether: Investigating the Mystery Behind the Largest Stablecoin

The "elephant in the room" in the cryptocurrency space

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Is it possible that everything’s going to be so good for us? Especially now that everything next to us is falling apart? That’s what most in the crypto community are wondering – at least the most suspicious.

Are we, seduced by our enthusiasm, missing something important? Is there any factor we may have underestimated?

Indeed, some people think it’s not all rosy. That there’s an elephant in the room. A problematic situation, which cryptocurrency investors, know its existence, choose to ignore, hoping it will magically disappear.

There’s an elephant in the room. A problematic situation, which #cryptocurrency #investors, know its existence, choose to ignore, hoping it will magically disappear. #tether

What’s Going on With Tether

Who’s that elephant? Tether, the largest stablecoin (cryptocurrency which has a locked exchange rate with the dollar).

The SEC’s lawsuit against Ripple has made many wonder what the next target will be.

Tether is easy to assume is the prime suspect, especially since it has no clean criminal record. And it’s not only Tether. All stablecoins have been targeted, as it is a given that there will be global legislation on them, as decided at the highest level, at the G7 meeting.

Tether’s Criminal Record

What we mean has no clean criminal record. In April 2019, the New York Attorney General accused the Bitfinex exchange of using Tether’s reserves to cover losses of $850 million, which appear to have disappeared from a Panamanian company that had sent them, Crypto Capital (p.s. Tether was created by Bitfinex’s owners).

In the end, the officials admitted that the claim that a Tether corresponds to an American dollar does not apply. That’s why they modified their site, which mentioned it. Coverage in dollars was only 74%.

Another element that does not seem reassuring is that, according to a recent statement by Tether’s co-founders, the reserves are located at Deltec Bank in the Bahamas. However, data from the foreign exchange flow do not show funds of this amount.

The fact is that although people in the crypto market are almost certainly that Tether is not fully covered in dollars, they don’t see it as a problem.

Maybe because even 74% is much more than any other bank. Perhaps because they know that much of them cannot be liquidated immediately, as it is used as a cover in DeFi applications. Maybe because they know it’s only a matter of time before he complies or is replaced by someone else.

It’s probably not the only legal dispute Tether has to face. In October 2019 there were new accusations of manipulation, although to date there has been no formal action.

The 156-page indictment says Bitfinex used Tether to influence the market. That is to say, they “cut” money from Tether’s “printer” to buy Bitcoin, Ethereum, and other cryptos, create a favorable climate, raise prices and then unload them to unsuspecting investors. For Tether’s part, they claim that the creation of Tether was a product of demand.

The Stablecoin Market

One parameter that cannot be ignored is that on December 2nd, a legislative proposal was announced by the US authorities (stable act) to regulate stablecoins.

If the proposal passes as it is, all stablecoins will be considered illegal in the US if they do not get approval from the Fed and other government bodies.

In other words, they should follow banking rules, such as the KYC and their reserves being in the Fed itself.

What does this mean for Tether? Most likely, it’ll hardly be able to meet the standards required, because its headquarters are outside the U.S. Other stablecoins, such as the USDC and Paxos Standard, will benefit from this as well as the decentralized Dai.

Competition might provide the solution. Any stablecoin that wants to look safe and reliable in the eyes of users will show us their guarantees.

If someone doesn’t, it will push users to another stablecoin that will reveal them. One more reason is that the OCC a few days ago, on January 4th, decided that American banks can use stablecoins. Whichever proves to be more reliable will gain significant market share among banking institutions.

There are now many people who buy Tether or some other stablecoin without necessarily being interested in Bitcoin or some other cryptocurrency. The reason is that it makes it easier for them to trade across borders, as well as because it is easier in some countries to buy it instead of dollars.

Conclusion

Why has the debate now intensified? Because a few days ago, on January 15th, at exactly the same time we had two incidents. The first is that the deadline for Tether to submit the documents requested by the New York State’s Attorney’s Office has expired.

At the same time, an article by someone who preferred to remain anonymous appeared and gained a lot of publicity, claiming that Tether is a scam called “The Bit Short: Inside Crypto’s Doomsday Machine“.

A response to the article was given, among others, by well-known analyst Willy Woo, who claims that the author ignores the way the exchanges operate.

So where’s the truth? Is there a problem with Tether or not? Well, the U.S. prosecutors are still looking into it.

But we can be sure of something. If Tether ever collapses, we know we’ll find out in time: from its parity to the dollar. If at some point Tether starts trading at a discount, then it means he’s lost credibility.

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