What Is Tether (USDT)?
Tether (USDT) is a digital asset that is used as a stablecoin within the cryptocurrency market. It was created in 2014 by Tether Limited, a company incorporated in the British Virgin Islands, and is issued on various blockchain platforms, including Ethereum, Tron, and Omni. Tether is designed to maintain a stable value relative to a specific currency or asset, with the most common version being tethered to the US dollar.
Tether can be used in much the same way as other top cryptocurrencies, such as for transactions and as a store of value. However, because it is designed to maintain a stable value, it is often used as a way to avoid the volatility of other cryptocurrencies while still participating in cryptocurrency transactions. Tether is also used as a way to facilitate cross-border transactions, as it allows users to transfer funds between different countries without having to worry about exchange rates or fees.
How does Tether Work?
Tether operates on a 1-to-1 ratio with the US dollar, meaning that for every Tether token in circulation, an equivalent amount of US dollars is held in reserve. This is meant to ensure that the value of Tether remains stable relative to the US dollar. Tether Limited claims to hold enough US dollars in reserve to fully back all Tether tokens in circulation and has undergone periodic audits to confirm this.
To provide transparency and increase confidence in the asset, Tether Limited has undergone periodic audits (though not independent) to confirm that it holds enough US dollars in reserve to fully back all Tether tokens in circulation. The company has also published the results of these audits on its website.
To use Tether, individuals or businesses can purchase the digital asset using US dollars, and then use it for transactions or hold onto it as a store of value. Tether can be transferred between parties using a cryptocurrency wallet, and can also be converted back into US dollars at any time.
While Tether has become one of the most widely used stablecoins in the cryptocurrency market, it has also faced controversy and legal issues. In this article, we will examine Tether’s controversial history and legal issues in more detail.
Examining Tether's controversial history and legal issues
The Bitfinex Saga
One of the main controversies surrounding Tether is its relationship with the cryptocurrency exchange Bitfinex. Bitfinex is closely related to Tether Limited, with many of the same individuals holding leadership positions at both companies. In addition, Bitfinex has been a major user of Tether, accounting for a significant portion of Tether’s overall volume. This close relationship has raised concerns among some analysts and regulators, as it could potentially create conflicts of interest and undermine the independence of Tether as a stablecoin. For example, if Bitfinex were to manipulate the value of a cryptocurrency using Tether, it could potentially benefit from the resulting price change.
In 2019, the New York Attorney General’s office launched an investigation into Tether Limited and Bitfinex, alleging that the companies had engaged in a cover-up to hide the loss of $850 million in client and corporate funds. The investigation is ongoing, and the companies have denied any wrongdoing.
Another controversy surrounding Tether is its lack of transparency. Tether Limited claims to hold enough US dollars in reserve to fully back all Tether tokens in circulation, but it has not undergone a full, independent audit to confirm this. In 2018, Tether Limited hired the accounting firm Friedman LLP to conduct an audit, but the audit was later cancelled and no results were released. Tether Limited has since undergone periodic audits by other firms, but these audits have been limited in scope and have not fully confirmed the company’s reserves.
This lack of transparency has led to concerns among some analysts and regulators that Tether may not be fully backed by US dollars, and that the company may be using Tether to manipulate the price of cryptocurrencies. Tether Limited has denied these allegations and has taken steps to increase transparency, such as publishing the results of its periodic audits on its website.
In addition to these controversies, Tether has also faced legal issues in various jurisdictions. In 2017, the US Commodity Futures Trading Commission (CFTC) issued a subpoena to Tether Limited and Bitfinex to investigate potential market manipulation. The CFTC later reached a settlement with the companies, requiring them to register with the CFTC and provide certain information about their operations.
In 2020, the US Department of Justice (DOJ) also announced that it was investigating Tether and Bitfinex for potential manipulation of the cryptocurrency market. The DOJ’s investigation is ongoing, and it is unclear what the outcome will be.
Tether has also faced legal issues in other countries, including France and the Netherlands. In 2021, the Netherlands Authority for the Financial Markets (AFM) announced that it had fined Tether Limited and Bitfinex a total of €1.1 million for failing to comply with Dutch anti-money laundering regulations.
Overall, Tether has faced a number of controversies and legal issues over the years, including allegations of price manipulation, lack of transparency, and non-compliance with regulations. While Tether Limited has denied any wrongdoing, these issues have raised concerns among some analysts and regulators, and have contributed to the ongoing debate about the role and regulation of stablecoins in the financial system.
The PROs and CONs of Tether
- Stability: Because Tether is meant to be pegged to the value of a specific currency or asset, it is generally more stable in value than other cryptocurrencies that can fluctuate significantly in value.
- Widely accepted: Tether is widely accepted by exchanges and merchants, making it easy to use for a variety of purposes.
- Transparency: Tether claims to be fully transparent, with regular audits and a commitment to maintaining a 1-to-1 reserve ratio (meaning that for every Tether in circulation, there is a corresponding US dollar in reserve).
- Lack of regulation: Tether is not regulated by any government or financial authority, which means that it is not subject to the same level of oversight as traditional currencies.
- Controversial history: Tether has been involved in several controversies in the past, including allegations of market manipulation and concerns about its reserve ratio.
- Counterparty risk: As with any cryptocurrency, there is a risk that Tether's issuer could become insolvent or otherwise unable to honor its obligations, which could lead to a loss of value for Tether holders.
Tether vs Bitcoin
Tether (USDT) and Bitcoin (BTC) are two of the most well-known assets in the cryptocurrency market. While they are both digital assets, they have some key differences in terms of their purpose, technology, and use cases.
|Blockchain||Multiple including Ethereum, Omni, Tron||Bitcoin|
|Pegged to the USD||Yes||No|
|Volatility||Maintains a stable value relative to the US dollar||Prone to price flunctuations|
|Governance||Issued by Tether Limited||Issued and governed by a decentralized network of users|
|Consensus mechanism||Uses several consensus mechanisms including Proof-of-work(PoW) and delegated proof-of-stake(DPoS)||Proof-of-work mechanism|
Tether Integration with other Blockchain platforms
One of the key features of Tether is its ability to be integrated with other blockchain platforms. Tether is issued on multiple blockchain platforms, including Ethereum, Tron, and Omni, and can be easily transferred between these platforms using so-called “wrapped” versions of the token.
For example, users can convert their Tether tokens from the Ethereum blockchain to the Tron blockchain using a wrapped version of Tether known as “wrapped Tether” (WUSDT). This allows users to take advantage of the unique features and capabilities of each blockchain platform, such as smart contract functionality or high transaction speeds without tokens losing their value.
The ability to easily transfer Tether between different blockchain platforms has made it a popular choice for cryptocurrency exchanges and other businesses that operate on multiple platforms. It allows these businesses to use Tether as a stablecoin while still taking advantage of the specific features and capabilities of each platform.
Tether and DeFi protocols
In addition to being integrated with different blockchain platforms, Tether has also been integrated with various decentralized finance (DeFi) protocols and platforms. DeFi protocols are decentralized networks that allow users to access financial services such as lending, borrowing, and trading without the need for traditional financial intermediaries.
Tether has been integrated with DeFi protocols such as Compound, Aave, and MakerDAO, allowing users to use Tether as collateral for loans or to participate in other financial transactions within the DeFi ecosystem. This has helped to increase the adoption and use of Tether within the DeFi space, and has made it a popular choice for users who want to take advantage of the benefits of DeFi while still maintaining the stability of a traditional currency.
Overall, the integration of Tether with other blockchain platforms and DeFi protocols has helped to increase the adoption and use of the asset within the cryptocurrency market. It has allowed Tether to be used as a stablecoin while still taking advantage of the specific features and capabilities of different blockchain platforms and DeFi protocols. This has made Tether a popular choice for businesses and users who want to use a stablecoin while still participating in the broader cryptocurrency ecosystem.
How to buy Tether
How Does Tether Stay at $1?
To maintain the value of Tether at $1, the issuer of Tether (Tether Limited) holds reserves of US dollars that are equal in value to the number of Tethers in circulation. Tether Limited claims that these reserves are audited regularly to ensure that they are sufficient to back the value of Tethers in circulation. This is why it is important that their claim is true.
Also, one way that Tether can stay at $1 is if investors continue to have confidence in the stability of the cryptocurrency and believe that it is fully backed by liquid collateral assets. If this happens, they are more likely to buy and hold the cryptocurrency, which can help to maintain its value. This confidence can be maintained through regular audits and clear communication about the collateral backing Tether; which some complain about.
Is Tether a good investment?
It is important to carefully consider whether Tether (USDT) is a good investment for you, as with any financial decision. Tether is a cryptocurrency that is intended to offer the benefits of cryptocurrency (such as fast, cheap transactions and decentralization) while avoiding the volatility that is characteristic of most cryptocurrencies.
One potential advantage of investing in Tether is that it may offer a degree of stability compared to other cryptocurrencies. Because Tether is pegged to a specific asset or currency, its value should not fluctuate as much as other cryptocurrencies that are not backed by any tangible asset. This can make Tether an appealing investment for those who are risk-averse or who are looking to diversify their cryptocurrency portfolio.
However, it is important to keep in mind that Tether is not without risks. One major concern is that the company behind Tether has not undergone a comprehensive, independent audit, which has led some to question whether the company’s reserves are indeed sufficient to back all outstanding Tethers. In addition, Tether has faced regulatory scrutiny in various jurisdictions, and has been accused of facilitating market manipulation and other illicit activities.
Another risk to consider is the potential for Tether to lose its peg to the underlying asset or currency. While Tether has generally remained close to its peg, there have been instances where it has diverged somewhat. For example, in 2017, the price of Tether USD briefly spiked to around $1.10, suggesting that traders were willing to pay a premium for Tethers due to the perceived demand for them. If Tether were to lose its peg, it could potentially become much more volatile, which could impact the value of your investment.
It is also important to consider the potential for Tether to be subject to market trends and events, just like any other asset. For example, Tether has been impacted by broader market trends, such as the bull market in cryptocurrencies that began in late 2020 and the subsequent correction that occurred in early 2021.
In conclusion, Tether may offer a degree of stability compared to other cryptocurrencies, and it has become a popular choice for traders looking to avoid volatility. However, it is important to carefully consider the risks associated with investing in Tether, including the lack of a comprehensive audit, regulatory scrutiny, and the potential for Tether to lose its peg or be impacted by market trends and events. As with any investment, it is essential to do your own research and carefully weigh the potential benefits and risks before making a decision.