Exposing Tether — The real story behind Tether Cryptocurrency Explained

Share:

Tether is a stable coin cryptocurrency that uses tokens issued by Tether Limited, controlled by Bitfinex’s owners. Many people have accused Tether of being a fraud, but the narrative has only been given in pieces until now. Today, we will uncover the truth behind the so-called stablecoin Tether.

What is Tether?

What exactly is Tether? Tether (USDT) is a cryptocurrency backed by the US dollar. USDT, the market’s most popular stablecoin, is fully supported by real assets in the Tether platform’s reserve account. Each unit of USDT is worth one US dollar.

Tether was designed to have a one-to-one exchange rate with the US dollar. The coin may be found on various blockchains and has increased trade volume and liquidity in recent years.

Can you trust Tether?

Many specialists and analysts feel that Tether is not the stability guarantor it claims to be. On the contrary, it is considered a potential threat to financial stability. Traders use Tethers to keep their crypto funds secured during periods of high volatility in the crypto market.

Tether is one of the world’s biggest cryptocurrencies and the biggest stablecoin in terms of market cap. Tether’s market cap is 83 billion dollars as of April 2022.

Tether’s dominance in the stablecoin market is undeniable. However, many investors believe that investing in Tether may be wrong.

While some experts fear that recent trust-related issues with Tether may have an unpredictable impact on the coin’s stability and the future of the entire cryptocurrency ecosystem, others believe that Tether represents stability.

Why is Tether controversial?

Tether has agreed to pay 41 million dollars to resolve accusations brought by the US Commodity Futures Trading Commission (CFTC) that it made false or misleading statements while claiming that its stablecoins were entirely backed by fiat currencies.

Tether cryptocurrency and Tether Limited are controversial due to the company’s suspected participation in Bitcoin price manipulation, a suspicious relationship with the Bitfinex exchange, and the company’s failure to provide a promised audit proving appropriate reserves supporting the Tether token.

Tether also failed to disclose that it included unsecured receivables and non-fiat assets as part of its reserves, falsely informing investors that it would conduct routine audits to show it maintained 100% of funds, even though its funds were not audited, according to the CFTC.

Tether was investigated by the New York Attorney General’s Office for allegations concerning its funding, and a meeting was held with the agency in February 2021. Tether is prohibited from conducting business in New York under the settlement terms.

Tether claimed in an email to The Verge that the CFTC order “found no concerns relevant to Tether’s current operations” and that issues raised in the order were resolved when Tether updated its terms of service in February 2019.

What will happen if Tether collapses?

If Tether were to fail or encounter a major regulatory crackdown, market liquidity would undoubtedly dry up, and many investors would lose much money.

On Social media, business TV, and the trading floors of hedge funds and investment banks, everyone began to wonder why Tether was minting so many currencies and whether it had the money it claimed to have. An anonymous anti-Tether blog post titled “The Bit Short: Inside Crypto’s Doomsday Machine” went viral, prompting CNBC host Jim Cramer to advise viewers to sell their cryptocurrency. “If Tether collapses, it will destroy the whole crypto economy,” he said.

Due to regulation, a criminal investigation, or a bank run, Tether’s collapse would be a massive blow to the crypto industry and investors. Imagine what would happen if you were at a blackjack table and the dealer suddenly revealed that your chips were worth 50% less — or almost nothing. That won’t prevent whales and day traders from profiting; they profit from volatility and price growth. Due to the market’s collapse, the Tether may become another excellent distressed asset.

Is Tether a risk to Bitcoin?

According to economics professors, Tether is frequently used as a holding place for high-frequency traders. According to Li, CEO of 4K (NFT marketplace), it is also used for leveraged bitcoin trading. If Tether loses its foundation, Bitcoin and Ethereum will fail as well. (Tether is used in more Bitcoin transactions than the USD.) It might be interpreted as a component of systemic risk: “ the actual dangers are people cannot pay their debts and lose their jobs.

This is the unusual, mysterious, and confusing organization at the center of the crypto economy. But, if you’re prepared to take on the potential dangers, the concerns around Tether may not matter. The concept is expressed in the headline of a report published by a small financial research firm: “Tether USDT Could Be a Scam, But It Can Still Be Valuable.” A cryptocurrency trader has provided a unique viewpoint on how industry insiders view the controversial stablecoin. “The basic line is that those of us who frequently trade in Tether are not unaware of the company’s suspicious actions and red flags,” the user tweeted. “We just calculated that the opportunity cost of avoiding Tether outweighs the danger of being exposed to it.”

Does USD back tether?

The US dollar does not back tethers.

It’s also true that banks don’t always back up their deposits with cash equivalents. This method is known as fractional banking. On the other hand, banks are regulated and offer excellent transparency into where their money is kept, which Tether doesn’t.

The most important question right now — and it has been for a while — is who is backing Tether. It was initially known as Realcoin in 2014, and the intention was that the US dollar would support it. For a while, the website said that “every tether is always backed 1-to-1 by traditional currencies kept in our reserves.”

This text was changed in February 2019 to: “Every Tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, sometimes, may have other assets and receivables from Tether loans to third parties, which may consist of affiliated entities.

If the phrase “affiliated entities” piqued your interest, you’re not alone. Tether also announced a collaboration with cryptocurrency exchange Bitfinex in 2014. The Paradise Papers leak in 2017 revealed that the same people run Bitfinex and Tether.

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of 850 million dollars of client and corporate funds,” said New York state Attorney General Letitia James in 2019. Tether’s lawyer stated that the cryptocurrency was only 74% backed.

Has Tether been audited?

According to the CFTC’s enforcement action, Tether failed to disclose that it owned unsecured receivables and non-fiat assets as part of its reserves and fraudulently assured investors that it would undertake routine, professional audits to verify that it kept “100% reserves at all times.” Tether reserves were not audited, according to the agency.

USDT recently made headlines after undergoing a significant “audit,” which was carried out to comply with a recent settlement agreement reached between Tether and the New York Attorney General’s Office. Many crypto specialists, though, have questioned the accuracy of this audit. Although seen as an attempt to answer questions about what supports USDT, the audit left many concerns unresolved.

Tether is being investigated for bank fraud.

According to Bloomberg, the Department of Justice is investigating whether Tether committed bank fraud during the early phases of its cryptocurrency transactions. The criminal investigation focuses on whether Tether failed to inform banks if transactions were crypto-related, which may have substantial consequences for law enforcement’s control of digital currencies.

According to Bloomberg, US authorities have been investigating Tether since 2018. Prosecutors have been sending letters to people informing them that they have been engaged in the investigation over the last few months. According to the notes, senior DOJ officials will finally decide whether or not to press charges.

Tether said in a statement that it has “routinely” maintained an open discussion with law enforcement, including the DOJ, “as part of our commitment to cooperation and transparency,” Bloomberg reported.

Should I buy Tether 2022?

Is it a brilliant idea to invest in Tether? Potentially because it is a stablecoin, it should maintain a value of $1, plus or minus a couple of cents. That is the point– it is not intended to gain or lose money in and of itself but rather to serve as a stable store of value.

Please don’t allow the coin’s stability to deceive you into thinking it’s simple. The number of people investing in the currency and the entire market value of Tether exploded in 2021.

Since then, the Tether value has tripled, rising from 21 billion dollars on January 1, 2021, to more than 83 billion dollars at writing.

Tether has generally always been the world’s third-largest cryptocurrency, after only bitcoin and ether. It is also the clear market leader in stable coins, outperforming competitors such as the USD coin, Gemini dollar, and DAI.

Can you make money on Tether?

Many will charge up from 6% to 12% in interest to keep Tether on their platform. Because of the strong demand in trading and cryptocurrency loans, Tether often earns more interest than other popular stable coins.

Centralized, stable currencies, such as USDT (Tether) and USDC, generate revenue via lending and investing the same way traditional banks do. They do this through fractional reserve banking, in which only a portion of deposits are guaranteed by actual cash on hand from which investors can withdraw. Stablecoin issuers assume that not everyone would redeem their stablecoins for dollars at the same time, freeing up funds for investing.

In the final analysis, dealing with stablecoins is one of the good ways for investors with a low-risk tolerance to earn from cryptocurrencies. They provide a diverse range of collateralization alternatives to suit various investing preferences and, in general, constitute a reasonable means to hedge against the risks associated with cryptocurrency. While not wholly risk-free, they provide greater financial and legal security than any crypto asset.