By Larry Wright
Cryptocurrencies are always in the spotlight because of the addition of Bitcoin to the books of well-known financial institutions and corporations. There has been a significant rise in interest in stablecoins, the less volatile assets in the cryptocurrency market. Tether is the most widely used stablecoin (USDT).
What is the Tether (USDT) Cryptocurrency?
Tether (USDT) is a cryptocurrency created by Tether Limited, a business owned by the founders of the cryptocurrency exchange Bitfinex. Tether is considered a stablecoin, and it was previously known as “Realcoin” in 2014 since it was supposed always to be worth one U.S. dollar. Tether is a cryptocurrency that was launched in 2014. To put it another way, the Tether may be thought of as a digital dollar.
While the notion of the currency seems to be revolutionary on paper, there are many misconceptions and debates around it
What are Stablecoins?
Stablecoins are designed to reduce volatility and enable bitcoin to be used as a store of value rather than a risky investment, according to its creators. As a bonus, stablecoins offer liquidity in a turbulent cryptocurrency market where it would be not easy to switch back and forth between cash and a cryptocurrency such as Bitcoin.
The most well-known stablecoins are the USD-backed cryptocurrencies like Tether, Gemini Dollar, and USD Coin, all backed by the U.S. dollar. Other stablecoins, on the other hand, rely on different sorts of collateral. The euro and the Japanese yen are examples of fiat currencies that are backed by commodities, whereas gold and silver are examples of entities that are supported by things.
When considering stablecoins, it is vital to remember that some organizations are less upfront than others about how much of their stablecoin is genuinely backed by fiat money and commodities. Tether itself has been engaged in controversy due to fraudulent statements made by the company and the fact that it does not have complete support.
Is there a Good Use for Tether?
Unregulated financial transfers are instantaneous and do not include any exchange rate risk. Tether’s daily volume exceeds its market capitalization, indicating that the cryptocurrency has a substantial transaction volume. Because the use of non-stable cryptocurrencies puts exchange rate risk into transfer transactions, Tether may be seen as a more secure alternative to accomplish short-term cash transfers than other options.
The danger is that if the value of Tether suddenly plummets, such transfers may be rendered ineffective. Financial transfers may be permitted as long as short-term consumers believe the risk to be minimal. As a result of the regulatory risk associated with Tether, we anticipate that stablecoins backed by cash will be utilized more commonly for such transactions in the medium future.
Tether Minting
Tether Limited is responsible for maintaining the Tether token reserves and facilitating fiat deposits and withdrawals. Additionally, it mints and destroys the tokens to maintain the currency’s value.
Tether was founded on the Omni Layer, a technology based on the Bitcoin blockchain and designed to be decentralized. The ledger is kept on the Bitcoin blockchain and Liquid, a Bitcoin sidechain, and transactions may be searched for using the Omni Explorer application.
Tether on other Blockchains
Besides Ethereum and Tron, Tether is also accessible on the EOSIO network and other blockchains. This implies that new assets may be developed in their native form on these platforms. Ethereum is the cryptocurrency with the most significant market cap for USDT.
Tether: What You Should Know Before Investing in It
The Tether can be purchased on most prominent cryptocurrency exchanges, but is it a good investment given its past and prospects? Even though it has had several difficulties in the past, Tether continues to be a relatively stable cryptocurrency that is stronger as a result of avoiding the consequences of those troubles — at least for the time being.
Despite the emergence of many rivals, Tether remains the most popular stablecoin and is frequently used for trading, lending, and generating interest income. However, although Tether is considered one of the riskier cryptocurrencies, mainly because it is concerned with transparency, it is still essential in the cryptocurrency industry.
Tether is available for purchase on several prominent cryptocurrency exchanges and lending platforms. Most would charge interest rates ranging from 6 percent to 12 percent simply for holding Tether on their platform, depending on the company. The massive demand for Tether in cryptocurrency trading and cryptocurrency loans means that it will generally yield a higher interest rate than other popular stablecoins such as GUSD, USDC, and DAI.
Similarly, on KuCoin, a cryptocurrency-based peer-to-peer lending platform, you will be able to request more excellent interest rates for Tether. Compared to the GUSD, USDC, Bitcoin, and Ethereum, it is the cryptocurrency that fetches the most incredible interest rates by a wide margin – around 20 percent yearly as of this writing — by far.
Whether you decide to invest or not, be sure you are familiar with the tax rules governing cryptocurrencies. Whether in the form of income or capital gains, income derived from cryptocurrencies may be subject to taxation.
Is Tether Valuable?
Traders and investors may benefit from stablecoins by reducing the risks associated with severe volatility, which is not unusual in the cryptocurrency markets.
Consider the following scenario: transfer part of your cryptocurrency money to USDT. In this way, you are not vulnerable to a sudden decline in cryptocurrency price since the USDT price has been set at a fixed level. Furthermore, since you are not transferring value to fiat, you avoid the expenses associated with crypto-to-fiat transactions.
Tether has also proven to be valued on some cryptocurrency exchanges. USDT allows them to enable crypto-to-crypto transactions and expand the number of trading pairs they can provide. Furthermore, it allows traders to trade cryptocurrency in jurisdictions where fiat trading is illegal.
Tether and Hacking Attacks
A hard fork was executed in November 2017 when Tether was reportedly hacked, with $31 million worth of Tether tokens taken. Following the incident, a hard fork was performed in December 2017. In January 2018, it encountered yet another stumbling block when the required audit to guarantee that the real-world reserve was maintained did not take place. Instead, it announced that it was terminating its relationship with the audit company, after which it was served with a subpoena by authorities. Concerns have been raised about whether the corporation, accused of a lack of transparency, has sufficient cash reserves to back the currency, which has been widely expressed.
New York Attorney General Letitia James filed an accusation against iFinex Inc., the parent company of cryptocurrency exchange Tether Ltd. and operator of cryptocurrency exchange Bitfinex, alleging that the company concealed an 860 million dollar loss of co-mingled client and corporate funds from investors in April of this year. According to court documents, this money was transferred to a Panamanian firm known as Crypto Capital Corp. without a contract or agreement for it to process client withdrawal requests. After the money went missing, Bitfinex is accused of taking at least $710 million from Tether’s cash reserves to cover the shortfall.
The corporations said in a statement that the files were made, “These documents were created in ill faith and included several misleading allegations. On the contrary, we have been told that the funds associated with Crypto Capital have not been lost but have instead been seized and safely stored. We are and have been aggressively attempting to our rights and remedies and get the release of that money, and we will continue to do so. Unfortunately, the New York Attorney General’s office seems to be focused on sabotaging such efforts, which will ultimately benefit our consumers.” Tether tokens may be traded on several notable cryptocurrency exchanges, including Binance, CoinSpot, BitFinex, Kraken, and the Tether website.
In the stablecoin field, Tether is by far the most dominant coin, with no serious challengers. Even when compared to other cryptocurrencies (and not necessarily stablecoins), it performs well, ranking fourth in terms of market capitalization in the process. After seven years of prosperity, there are no indications of slowing down. At this time, it is considered to be one of the crypto space’s “too big to fail” enterprises.
However, please don’t hold your breath waiting for it to improve in value. Because of this, the USDT is maintained at the $1 mark, and the team behind it plans to keep it at that level indefinitely. Although Tether is a valuable tool, it is not an investment in the classic sense.
Is Tether a Wise Investment?
It is now possible to trade any cryptocurrency for Tether in a matter of minutes, but changing a cryptocurrency to cash would take days and incur transaction costs. Tether and other stablecoins are examples of this trend. This increases liquidity for exchange platforms, provides investors with no-cost exit methods, and allows investors’ portfolios to be more flexible and stable.
Furthermore, Tether may be transmitted anywhere in the world considerably more rapidly and at a cheaper cost than typical bank and financial institution wire transactions. Even though most individuals would not use Bitcoin or Ethereum for purchases and everyday transactions due to their extreme volatility, Tether makes perfect sense.
It is still wise to consider investing Tether for all of these reasons and others. Even though Tether is not necessarily a long-term investment that will grow your money on its own because it remains pegged to the United States dollar, there are several lending platforms, exchanges, and wallets that will pay you high-interest rates for storing USDT on their media.
Is Tether a Scam?
Even though Tether Limited claims to be a stablecoin supplier, it is improbable that it will back all Tether in circulation with USD. Furthermore, financial regulators have previously sanctioned an opaque, unregulated organization.
The United States dollar does not back tethers. By March 2021, just a few percentage points of the currency’s ropes were backed by cash or equivalents (such as bank deposits or Treasury bills), as seen in the chart below. Without more openness and an audit, it is impossible to determine the worth of reserves such as commercial papers.
It is also true in the case of banks, which do not back all of their deposits with cash or cash-like alternatives. Fractional banking is the term used to describe this strategy. On the other hand, banks are regulated and give a large amount of transparency into where their money is held, which is not the case in the case of Tether. Tether Limited furthermore does not provide any legal assurances about the conversion of tethers to dollars.
The group is deceiving in its claims. According to the CTO, they disclosed details about Tether’s backing in response to requests from the cryptocurrency community. However, this revelation was made most likely as a result of a requirement by the New York Attorney General to boost their openness in their operations.
The organization is challenging to understand. The breakdown it offers explaining how it backs its currency is a pie chart that has not been audited and has no information about any of the involved assets.
Tether executives are the subject of a criminal investigation concerning their behavior during the currency’s earliest days of existence.
Unique Characteristics of Tether
The most distinguishing attribute of the USDT is that it is always worth one dollar in U.S. dollars. It is always worth the same amount makes it an extremely effective tool for holding or transferring wealth. Bitcoin, Ethereum, and other prominent cryptocurrencies tend to vary in value in response to changes in supply and demand in the market. By design, USDT is always worth a dollar, regardless of the exchange rate.
Tether’s parent firm claims to have assets equal to the absolute market value of its currency in circulation at any one time. This indicates that for every USDT in circulation, the country has a dollar in cash or highly liquid investment assets on hand. As long as you have faith in Tether and its accountants in the Cayman Islands, it may serve as an excellent alternative to the U.S. dollar for various uses, including international transfers and cryptocurrency trading, without the need to convert back into dollars. Nonetheless, there are enough issues regarding Tether’s assets and motivations that you must read the controversy section below before committing all of your financial resources to USDT for your banking requirements.
Once it has been accepted into the crypto marketplace, it trades just like any other money, thanks to blockchain technology. That means you may buy and sell Tether on any cryptocurrency exchange that accepts the USDT as a payment method.
Suppose legislation is approved to restrict Tether’s exposure in the United States. In that case, this might have ramifications for the cryptocurrency sector if exchanges utilize it to drive up the price of cryptocurrencies. Based on previous price fluctuations, the printing of Tether and the price movements of bitcoin were shown to be connected.
Complicated History of Tether
The history of Tether is more complicated than that of many other cryptocurrencies. While many cryptocurrencies have not caused much controversy, Tether has. A strong relationship exists between Tether and cryptocurrency exchange Bitfinex, with both companies sharing CEO JL van der Velde and other senior personnel.
Because of this tight association, experts are questioning if Bitcoin prices are being manipulated via the use of Tether and Bitfinex.
Despite Tether’s assurances, the New York Attorney General launched an investigation into the cryptocurrency exchange Bitfinex, stating that, despite its claims, Tether was not backed by equivalent amounts of U.S. dollar assets. Aside from that, the two firms were accused of illegally concealing $850 million in missing cash and misled investors about the strength of their currency backing.
Bitfinex and Tether agreed to pay $18.5 million to the State of New York and comply with new transparency reporting standards as part of a settlement agreement reached in February 2021 without admitting or disputing the allegations.
The Commodity Futures Trading Commission (CFTC) penalized Tether $41 million in October 2021 for making false statements about its holdings of U.S. dollar reserves. Bitfinex was also fined $1.5 million by the SEC.
Even though these new guidelines should safeguard investors, it is prudent to exercise care while owning an asset or dealing with a corporation that has been previously implicated in the fraud.
Future of Tether
The introduction of central bank digital currencies and government efforts to regulate Tether indicate that the cryptocurrency’s market influence is unlikely to endure in the long run. On the other hand, regulation moves slowly, and it is difficult to predict when such changes will occur.
I hope you don’t store your money in Tether and stay away from cryptocurrency scammers. Several other potential crypto scams were investigated to assist you in avoiding them, including projects such as Pi Network, which may only waste users’ time, and outrageous anonymous projects such as Smart Trade Coin, which collect users’ crypto exchange passwords with promises of future wealth to assist you in avoiding them.