Tether is a controversial cryptocurrency with tokens issued by Tether Limited. It formerly claimed that each token was backed by one United States dollar, but on 14 March 2019 changed the backing to include loans to affiliate companies. The Bitfinex exchange was accused by the New York Attorney General of using Tether’s funds to cover up $850 million in funds missing since mid-2018.
Tether is called a stablecoin because it was originally designed to always be worth $1.00, maintaining $1.00 in reserves for each tether issued. Nevertheless, Tether Limited states that owners of tethers have no contractual right, other legal claims, or guarantee that tethers will be redeemed or exchanged for dollars. On 30 April 2019 Tether Limited’s lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents.
Tether Limited and the tether cryptocurrency are controversial because of the company’s failure to provide a promised audit showing adequate reserves backing tether, its alleged role in manipulating the price of bitcoin, the unclear relationship with the Bitfinex exchange, and the company’s apparent lack of a long-term banking relationship. Author David Gerard was quoted by the Wall Street Journal saying that Tether “is sort of the central bank of crypto trading … they don’t conduct themselves like you’d expect a responsible, sensible financial institution to do.”Tether’s price decreased to lows of $0.90 on 15 October 2018 on speculation that investors are losing faith in the token. On 20 November 2018, Bloomberg reported that U.S. federal prosecutors are investigating whether Tether was used to manipulate the price of bitcoin. In 2019, Tether surpassed Bitcoin in trading volume with the highest daily and monthly trading volume of any cryptocurrency on the market.
Questions about dollar reserves
A blockchain critic has raised questions about the relationship between Bitfinex and Tether, accusing Bitfinex of creating “magic Tethers out of thin air”. In September 2017, Tether published a memorandum from a public accounting firm that Tether Limited then said showed that tethers were fully backed by US dollars; however, according to the New York Times, independent attorney Lewis Cohen stated the document, because of the careful way it was phrased, does not prove that the Tether coins are backed by dollars”. The documents also fail to ascertain whether the balances in question are otherwise encumbered.”
Tether on Other Blockchains
Tether is now available on other blockchains, including Ethereum (ETH), Tron (TRX) and EOSIO (EOS), which allow for the creation of new assets natively on their blockchains.
How Does Tether Work?
It sounds easy pegging a cryptocurrency to the price of a real-world asset. However, the task is notoriously difficult for many reasons. To accomplish this task, Hong-Kong based Tether Limited originally claimed that for every ASDT issued, the firm held an equivalent amount of dollars kept in reserve.
What are Stablecoins?
Stablecoins are blockchain instruments that have their value pegged to outside commodities.
The advantages these coins bring to the market are undeniable. For one, their stability helps curtail the volatility of cryptocurrencies as a whole. Investors depend on stablecoins as a way to escape bearish markets without converting funds back into fiat currencies.