Tether Cryptocurrency Review
Welcome to the Tether Cryptocurrency Review. New to crypto? Access our Blockchain 101 material before you dive in!
Since Tether, also known as USDT, is so unique we’re going to do things a little differently this time around. Instead of scoring Tether like an investment option, we will take a look at the reasons to use Tether for its intended purpose.
So What Is Tether?
Simply put, USDT is a stablecoin. This means that it’s price does not change over time. The market can go up and down and back up again and USDT will still be worth one dollar. For every USDT in circulation there’s one dollar in escrow to back it. Knowing this, Tether is actually a pretty accurate name.
On its face Tether might seem like the best cryptocurrency. Something that holds it value makes great money and it can be used for everyday transactions. But cryptocurrency is a popular investment because asset prices swing widely. From this perspective Tether might seem useless.
Traders found an excellent use for USDT though. In rising markets USDT might not be useful but when prices are falling it allows investors to lock in their gains. Bitcoin or other digital assets are traded for USDT and holders can decide when to cash out or purchase cryptocurrencies again. When prices fall USDT holders don’t lose any money.
Where Did Tether Come From?
Tether, originally Realcoin (the name was changed months later), can find its roots in Bitfinex, the cryptocurrency exchange. Bitfinex was founded in 2012 and it currently ranks 3rd in average daily volume. Bitfinex originally claimed that the two were separate but the Paradise Papers released in 2017 proved this claim to be false.
The papers asserted that the two entities had common owners and showed that the founders of Bitfinex, Giancarlo Devasini and Philip Potter, created Tether in the British Virgin Islands in 2014.
JL van der Velde is the CEO of both Bitfinex and Tether and he has a long history of entrepreneurship in Asia. He led several IT related companies before becoming the CEO of Bitfinex in 2013. To see the rest of the Bitfinex team please click here.
Are There Risks?
Many parties have speculated that Bitfinex and Tether have artificially manipulated the price of Bitcoin and other cryptocurrencies. Multiple studies have shown that Bitcoin prices will increase shortly after new Tether is minted. Though it’s difficult to prove that Tether is the direct cause of these price increases, there is no denying that the minting of Tether had a part to play in the bull market at the end of 2017.
It should also be noted that various players in the cryptocurrency community have called out Tether on their claim that each Tether is backed by one US dollar. Prior to the Commodities Futures Trading Commission issuing a subpoena in December 2017, Tether tried to dispel concern by releasing unaudited documents like the one shown below.
They eventually engaged with a public accounting firm called Friedman LLP to conduct an audit of its financial position. Unfortunately the audit was not completed because the engagement fell through. The reason for the fallout was not specifically detailed.
Afterwards, Tether engaged a law firm to review its claims that the entity had enough assets to cover the value of the outstanding Tether. But to date an official audit has never been conducted. This is concerning because the utility value of USDT is directly tied to the assets backing it. If those assets are not kept safe or if they do not exist USDT holders could be in dire straights.
What Other Options Are There?
USDT isn’t the only stablecoin that exists. After claims of price manipulation led by Bitfinex and Tether were released, TrueUSD opened for business. This stablecoin is also backed one for one by the US dollar and claims to be more transparent than Tether.
Another project called EURS, a cryptocurrency backed by the Euros, is out there. And there are projects in the works such as Basis, which uses the concept of supply and demand to keep the price of their token stable.
The point here is that USDT is not the only asset backed token. It’s driven by the popularity of Bitfinex and that is why it is highly available across various exchanges. If a scandal were to ensue or if Bitfinex takes a wrong step Tether could lose market share very quickly.