Following the events of January 2018 between Tether, and audit firm Friedman LLP, concerns around Tether’s USDT token continues to be on the increase. This is ruining the trust of users as chances to prove that USDT is backed by real dollars, and show that the company is running a legal operation continues to be on the decline. This situation doesn’t seem to be getting any better.
Following user speculations that Tether is pumping the market through artificial manipulations, it is believed that Tether is not just creating USDT without real dollar backing.
In order to understand the controversies surrounding tether, it might help to understand what tether is.
What is Tether?
Created in 2015 with the brand name “Realcoin”, Tether is supposedly backed on a one-to-one ratio with the US dollar and EURO. This means that for every USDT or EURT, the company claims to keep one USD and one EURT respectively. According to Icotokennews.com, Realcoin is just one of many hundreds of cryptocurrencies being released in the latest cryptocurrency fad.
Tether was created with the intention of being a stable coin, with its value pegged to the USD, thereby preventing it from having volatility like other crypto coins. It was meant to be used as a means to enter or exit onto exchanges (a way to keep stable digital assets without the stress of converting cryptocurrency into fiat currency).
However, over the past couple of months, there’s been growing concerns that Tether might not be backed on a one to one ratio by the USD as claimed by the company. The company, however, insists this is mere speculation, claiming their audit is in order.
Release of Freshly Minted Tokens
Despite these controversies, and without clarifying the current issues, the company has released new tokens which are pegged to the US dollar and the Euro. These newly minted tokens are stored up in two Ethereum wallets. The plan is to use this to significantly increase trading services on the Ethfinix trading platform.
If this is to be compared to the USDT and EURT currency supply, the amount of freshly minted tokens appear to be much less with around 86.3 million Euro pegged EURT and 60.1 million dollar pegged USDT as it appears on the Ethereum block.
It is not clear at the moment how much new tokens the company is planning to mint, as sufficient information regarding that is not yet available. How the Ethfinix exchange plans on introducing these freshly minted tokens, and the trading pair which they intend on using is not yet clear. The tokens are even yet to be listed on coinmarketcap.com. Currently, the only thing investors have is the brand’s promise to introduce ERC20 Tether tokens, which has been promised would be traded on Ethfinix.
The announcement in part noted that: “Tether have now collaborated with Ethfinex on the development of the first Ethereum-based Tether, compatible with the ERC20 standard. The ERC20 Tether allows for tokenized USD to be exchanged on the Ethereum network, enabling interoperability with Ethereum-based protocols and DApps whilst allowing users to transact with fiat currencies across the Ethereum Network.”
Against the backdrop of the current bullish trend in the market, market analysts predict that the freshly minted tokens might receive an enthusiastic acceptance from hopeful investors. Although with the trading limitations existing on the Ethfinix platform, the exchange might not be considering activating the new tokens anytime soon.
However, it can be seen that Ether is having a notable influence on the market with about 2.2 billion USDT in circulation. There’s currently an increased demand for ether in the trading market, with more than $3 billion traded in Tether volumes recently. Tether is presently second only to Bitcoin if trading volume is to be considered, with Bitcoin trading to about $8 billion.
Meanwhile, another outside observer is warning about the potential dangers that tether poses to the smooth operation of exchanges. Weiss Ratings, an independent U.S based agency, which publishes letter grades for crytocurrency brands, in an attempt to enlighten investors on the risks of tether, issued an alert highlighting common fears about USDT; a cryptocurrency which claims to be covered by the U.S dollar reserves.
As Weiss analyst, Juan M. Villaverde noted, “The big issue: There’s never been an audit, and the folks behind Tether have been quite shady when asked. They have continuously claimed their tokens are backed 100% by actual dollars, yet they have failed to present any evidence to support this claim.
“On social media, there appears to be consensus that what Tether is actually doing is running a fractional reserve system. In other words, most observers claim they DO NOT have the dollars to back up all those Tether coins. I tend to agree. It’s just too suspicious.”
Weiss goes further to explain the importance of USDT to the ecosystem of cryptocurrency exchanges such as Binance, which uses the coin as a digital version for real dollars in trading. This makes the coin among the most traded cryptocurrencies, and the only digital money to exceed its market cap on a near regular basis.
It is only natural for these exchanges to be dependent on Tether to provide liquidity, and this as well puts investors at risk should the government decide to stop its printing. This has a high likelihood of happening under the U.S law.
Providing further analysis, Juan said, “The consequences of hanky-panky could be far-reaching. What happens if Tether does turn out to be fraudulent? Or what happens if a major government determines that cryptocurrencies like Tether are being used by exchanges to avoid regulations?
“What if this large source of liquidity suddenly evaporates? Conceivably, it could cause exchange failures. It could drive investors to liquidate their positions, causing sharp declines in market prices.”
Tether last month announced that they had plans to abandon the Bitcoin core and adopt Ethereum based tokens following the hack which happened last year. This could be the possible explanation as regards their bold move to issuing Ethereum-based tokens despite unresolved controversies.