Tether is one of the most boring cryptocurrencies when assessed from the point of view of exchange rate dynamics. It appeared on the market relatively recently and quickly began to be perceived by the audience as a “cryptocurrency dollar.” After all, USDT has a very close connection with the main world currency – the American dollar.
Tether makes life easier for traders and investors by being an “outsider” in the cryptocurrency family. But what and who is behind this stability and is it natural? In this detailed review of Tether, we will look at the history, technical characteristics and pitfalls of the fiato-cryptocurrency.
What is Tether and what happened?
You can read more about the Tether cryptocurrency itself in a separate article. Here we will say that this cryptocurrency asset is issued by Tether Limited (a subsidiary of Bitfinex registered in the British Virgin Islands) through the Omni protocol. The token aims to provide a “stable asset” to survive the volatility of other cryptocurrencies. They also recently added an Ethereum based ERC20 token. Tether Ltd claims that each of the tokens issued is backed by real reserves in dollars (and more recently euros). The idea is that when a user deposits dollars into a Tether bank account, the company creates a corresponding number of tokens and transfers them to the user. The project makes two key promises:
- Each token issued will be backed by an equivalent unit of currency.
- Professional auditors will regularly review, sign and publish bank account balances and financial transfers.
Tether is centralized and its reliability is determined by trust in Bitfinex / Tether Limited.
For new participants in this market, it will be very useful to trace the timeline of Tether’s development and its connection with Bitfinex:
- Bitfinex operators Phil Potter and CFO Giancarlo Devasini created Tether Limited in the British Virgin Islands, but told the public that Bitfinex and Tether were independent of each other. Throughout 2020 and 2020, the supply of Tether remains relatively unchanged.
- On August 2, 2020, the second largest theft from a crypto exchange occurred when Bitfinex lost almost 120,000 BTC. Bitfinex never disclosed the full details of the platform hack, but BitGo (the security company) claims that its servers were not hacked.
- In just 4 days, exchange clients will receive BFX tokens, initially valued at $1 each.
- Two weeks after the hack, Bitfinex announced that Ledger Labs would investigate the theft and conduct a financial audit of the exchange's cryptocurrency and fiat assets. The public does not see the results of the investigation, and several months later, Bitfinex admits that they did not hire Ledger Labs to conduct the audit.
- In May 2020, Bitfinex hires Friedman LLP for audit.
- On November 7, 2020, documents dubbed the “Paradise Papers” are leaked, which prove that Bitfinex and Tether are controlled by the same people.
- On November 19, 2020, Tether was hacked and $31 million suddenly disappeared. Tether Limited reacts to this by creating a hard fork.
- On December 4, 2020, immediately after hiring PR firm 5W, Bitfinex hired law firm Steptoe & Johnson and threatened legal action against critics.
- On December 6, 2020, the CFTC sent a subpoena to Tether and Bitfinex. This news was not made public until late January.
- On December 21, 2020, without any official announcement, Bitfinex suddenly closed all new accounts. Those trying to sign up are asked for a referral code, but no referral code appears to exist.
- After a month, when the exchange is closed to new registrations, Bitfinex announces that registration is open, but a $10,000 deposit is now required to begin trading.
- Friedman LLP completely terminates its connection with Tether on January 27, 2017.
Bitcoin manipulator sets sights on a cable, bitfinex
Back in May of this year, the US Department of Justice (DoJ), in collaboration with the Commodity Futures Trading Commission (CFTC), launched a criminal investigation into whether crypto traders were manipulating the price of Bitcoin.
They were trying to determine where they were using tactics such as wash trading and spoofing - a practice in which large orders are placed in an attempt to influence the direction of price movement, only to have the order "walled" out when its orders began closing it out.
Investigators have zeroed in on the leading stable market by market share, Tether, and popular crypto exchange Bitfinex, to which it is closely affiliated, according to a new report from Bloomberg.
As many as three different sources “familiar with the matter” suggest that the trial data potentially indicates that Tether and Bitfinex are being used to illegally drive up prices. Both Tether and Bitfinex share the same management team, which appears to be at the center of the investigation.
Common Misconception: Tether is a Small Part of the Total Capitalization
One of the most common misconceptions is that the “market cap” amount that is displayed on CoinMarketCap.com represents the amount of money that is invested in each coin.
Some don't see a problem with Tether's collapse because its capitalization is only $2.2 billion, according to CoinMarketCap, and the market is only about $400 billion, meaning it's only 0.5% of the market.
But this is somewhat wrong. Market cap is simply the latest price multiplied by the tokens in circulation. Most bitcoins (and most coins) are held by those who have ever mined or bought them for a very low price, with the price increasing over time.
An increase in market cap by X does not mean that there was an influx of X dollars into the market. A $400 billion market cap does NOT mean there are $400 billion in assets. But for Tether, a market capitalization of $2 billion means that exactly $2 billion must be invested in the asset.
No one can say exactly how much money has been poured into the cryptocurrency market, but JPMorgan analysts found that when there was a net capital inflow of $6 billion, it resulted in a market capitalization of $300 billion. This gives us a ratio of approximately 50:1 (market capitalization to fiat inflows).
For Tether, however, the market capitalization must match in order to qualify for the token issuance. To get 50 USDT, you must deposit 50 real dollars, and then 50 brand new tokens will be released that have never existed on the market before.
What is often ignored is that Bitfinex allows margin trading with 3.3x leverage. A Bitfinexed user has done an excellent analysis of how Tether is used for margin funding.
Tether does not have $2.2 billion, based on data from JP Morgan we can say the following:
Even without any margin lending, Tether has about 27.5% of the crypto market.
CoinMarketCap is a much better indicator of how influential Tether's volumes are: it is currently the second-largest by volume, and there are sometimes days when volume exceeds the market cap.
Tether is not a side issue, but one of the main underlying mechanisms upon which all market value is built.
Study Suggests Tether Used as FOMO Fuel, Tether and Bitfinex Deny
Shortly after the DoJ launched the study, academic researchers at the University of Texas released a clear 66-page report claiming they had found data that suggested Tether was printed and used following "market downturns" leading to "significant the rise in Bitcoin prices." »
“Less than 1% of the hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies,” the newspaper suggested.
Despite repeated questioning about the integrity of the businesses he controls, Jean-Louis van der Velde, CEO of Tether Ltd., denies all claims and maintains that his business is legitimate.
Related Reading: Tether Burns Half a Billion USDT Coins in Act of Atonement
Tether issuing USDT to pump Bitcoin?
Some people believe that the timing of the release of Tether tokens suspiciously coincides with the price of Bitcoin.
This was recently analyzed statistically. Printing new crypto dollars propels the market. 48.8% of the BTC price increase in the period under review occurred in two-hour periods following the arrival of 91 different USDT transfers into the Bitfinex wallet.
When the prices of Bitcoin and other currencies declined, new tokens were issued to purchase the falling coins. Bitfinex withdrawal/deposit statistics are unusual. You can view it here https://www.tetherreport.com. Although there is not enough analysis to make precise statements, looking at the chart of BTC and USDT you can trace the correlation. Even the NYTimes wrote about it.
But this would not matter if Tether is backed by dollars.
Didn't Tether release the audit in September?
Some online publications have attempted to report that Tether was audited by Friedman and that the report was released in September 2020. But it was just a consultation, which you can read here (pdf in English).
They clearly state that this does not involve reviewing accounts or performing other procedures as in an audit. They state from the outset that this is a consulting work (not an audit) and that it cannot be guaranteed by third parties. During a consultation, you receive information from the client without checking its accuracy.
Tether provided screenshots of two bank accounts. One of them is on behalf of Tether Limited, and the other is a trustee account:
As of September 15, 2020, the bank had $60,919,810 in the account on behalf of an individual in favor of Tether Limited. FLPP received a confirmation letter, which, according to Tether Limited, is an agreement with the trustee. But this letter has no legal force, it has not been verified.
Most importantly, “FLLP has not evaluated the terms of the above bank accounts and makes no representations regarding the ability of customers to access funds from the accounts or whether the funds are used for purposes other than redeeming Tether tokens.”
Basically, Tether gave them the name of a person with $60 million in an account, then gives them a letter saying that there is a trust agreement between that person and Tether Limited. They also have an account of 382 million dodollars, but there is no guarantee that this account is only for tokens.
Currently, Tether has more tokens in circulation and we don't know for sure if they are actually backed by anything.
Continuation of the controversy surrounding the cable and Bitfinex
Controversy seems to run through Tater at every turn. The company has long been under scrutiny that the stablecoin cryptocurrency is not pegged 1-to-1 to the corresponding US dollar, as the company claims. Tether has released reports from third-party auditors confirming that the Tethers proposal is adequately supported, but the cryptocurrency community remains skeptical.
The uncertainty surrounding Tether recently caused the price of Bitcoin to become out of sync between cryptocurrency exchanges, depending on whether the exchange rate was offering a trading pair against BTC pegged to Tether or pegged to the US dollar. Exchanges that offered Tether showed that Bitcoin prices traded at as much as $1,000 premiums at once as capital flowed out of Tether and into Bitcoin-like cryptocurrencies on exchanges that offered the controversial stablecoin.
Bitcoin rose from $6,000 to $20,000 last year, only breaking below $5,000 this week to a yearly low of $4,250. It is said that Tether was used to pump the price of Bitcoin, creating a parabolic rise and subsequent market crash.
Featured image from Shutterstock.
The post DoJ Bitcoin Manipulation Probe Homes in on Tether and Bitfinex appeared first on NewsBTC.
What happens if Tether has no real dollars?
According to Thomas Glucksmann, head of business development at Gatecoin, Tether's collapse could have a devastating effect on many exchanges as significant volumes relied on the dollar-pegged token.
If traders lose confidence in this token, its price will begin to fall and people will abandon it. If Tether is unable to satisfy all customers' demand for dollars, USDT holders will turn to other cryptocurrencies. With the token's role as an intermediary compromised, investors may lose faith in cryptocurrencies in general. This is bad in the long run.
Another problem is that Bitfinex may simply close down with other people's bitcoins.
If Tether crashes:
- Exchanges using Tether will see a massive jump in the prices of Bitcoin and alts when everyone moves away from Tether. Newcomers to these exchanges will think that they are now millionaires until they realize that they are rich in tethers, not dollars.
- Exchanges that haven't used Tether will see big drops in Bitcoin and alts as savvy investors move the crypto into dollars.
- There will be a transition to exchanges with real fiat pairs.
- Exchanges may prohibit withdrawals.
- Many exchanges holding large Tether balances, especially Bitfinex, will likely become insolvent.
- There will be lawsuits with Tether Limited, registered on the island
- Caribbean, whose bankruptcy laws are likely to be company-friendly.
Tether
Tether (USDT) has the benefits of both open blockchain technology and traditional currency, transforming your money into a stable digital currency equivalent. Leveraging blockchain technology, Tether allows digital tokens pegged to dollars, euros and yen to be stored, sent and received on a person-to-person basis on a global scale, instantly and securely at a fraction of the cost of any alternative.
The currencies of the Tether platform are designated by using a ₮ sign added to the standard currencies: USD₮ , EUR₮ and JPY₮ .
Rate as of 08/14/2020
- Rate:
1.008031 USD - Symbol:
USDT - Rating (CMC):
4
Algorithm
Tether exists on blockchains through the Omni protocol. The Omni Protocol is open source software that interacts with blockchains to enable the issuance and redemption of cryptocurrency tokens, in this case tethers.
Tether platform currencies are backed 100% by actual fiat funds in our reserve account. Tethers are subject to redemption and exchange in accordance with Tether Limited's terms of service.
Exchange rate: 1 tether USD₮ equals 1 USD.
The Tether platform is fully reserved when the sum of all tethers in circulation is greater than or equal to the fiat currency balance in our reserve. Through our Transparency page, anyone can view both of these numbers in near real-time.
What real currencies are supported by Tether?
Tether initially supported US dollars (USD) and euros (EUR), but support for Japanese yen (JPY) will be added soon.
Who can use Tether?
Tether allows entities (including exchanges, wallets, payment processors, financial services and ATMs) to easily use fiat currencies on blockchains. Tether is integrated by some of the largest companies in the digital currency infrastructure.
Individuals can also create a Tether wallet or use Tether-enabled platforms to transact with tether.
How does Tether protect me from cryptocurrency volatility?
Tethers are attached, or pegged, to real currencies.
They represent new funds that move on the blockchain as easily as other digital currencies. Tether currencies are not money, but digital tokens formatted to work on blockchains. Tethers keep their value at 1:1 in relation to the original funds.
How do I know if Tether is safe for me?
Tether is built on revolutionary and cryptographically secure open blockchain technologies and adheres to strict security requirements, as well as laws and administrative regulations of governments around the world.
All tethers are pegged at a one-to-one ratio to the corresponding fiat currency (i.e. 1 USD₮ = 1 USD), and are 100% backed by actual funds in our reserve account. As a fully transparent company, we publish real-time records of all funds held in and transferred to or from our reserve account.
Tethers can be stored, sent and received securely on the blockchain. They are subject to repayment against the initial funds in accordance with the rules for the provision of Tether Limited services.
Where can I use Tether?
The beta version of Tether is currently live. We want to make Tether available anywhere you can use digital currencies, and in many places where digital currencies are not yet accepted.
Is Tether transparent?
Yes, Tether is a platform that remains completely transparent at all times and is regularly audited. Each tether is 100% backed by its original currency.
How much does it cost to use Tether?
Tether has virtually zero conversion fees, charges no commissions, and offers the best exchange rates on the market.
Sending between Tether.to wallets is always free.
When you send funds from your Tether.to wallet to an external wallet that supports Tether, we will honor all blockchain fees. Fees incurred when sending tethers outside of our wallet are beyond our control.
Do I need to go through the KYC procedure?
Completing our know your customer form and going through the confirmation process is required to issue and redeem USD₮, EUR₮ and soon JPY₮.
Tether is committed to operating in a secure and transparent manner while complying with all government requirements and regulations. For this reason, Tether does not operate in countries or states that do not regulate virtual currencies. Users will not be able to access Tether services in these locations, and Tether will not be able to offer services to residents of these countries.
Countries with limited Tether functionality currently include:
Afghanistan, Bosnia and Herzegovina, Democratic People's Republic of Korea, Ethiopia, Iran, Iraq, Lao People's Democratic Republic, Syrian Arab Republic, Uganda, Vanuatu, Yemen.
