Just like a moth to a flame, Tether always finds a way to steer itself into controversy. In the past, the crypto community has questioned its U.S dollar pegging. Some reports have also accused the stablecoin of being used to influence bitcoin’s price.
And now, it’s back on the headlines again. But this time, it’s by its own doing.
Tether has always claimed that all the USDT tokens are backed in a 1:1 ratio by U.S dollars in reserve. It has even invited independent auditors who have confirmed as much. On its website, the company previously indicated:
Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.
However, the company updated its website and the new terms tell a different narrative. The updated text reads:
Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”).
Tether probably hoped that the crypto community wouldn’t notice the clever alterations. Or maybe, they hoped we wouldn’t make a big fuss. Except we do. We must.
For one, Tether is by far the largest stablecoin. According to CoinMarketCap, it’s market capitalization stands at $2 billion. This makes it the ninth-largest crypto globally, ahead of prominent players such as Monero, Dash and NEO.
This means that whatever happens to the stablecoin directly affects the entire crypto community.
Tether Is Setting Its Own Rules
So, now we know that not all USDT tokens are in fact backed by the U.S dollar. Some are backed by “receivables from loans made by Tether to third parties.” This means that Tether has possibly appointed itself as a fractional bank, using your USDT tokens. Loans issued to third parties definitely don’t count as reserves – at the very least, not many of us would feel too comfortable with that arrangement.
The company also indicates that some of the tokens are backed by cash equivalents. It doesn’t give an example of what these equivalents are. However, deducing from the fact that Tether is a crypto company, they most likely are other cryptos, at least a good portion of them.
This beats the idea of having a stablecoin. The key reason we turn to stablecoins is to avoid the volatility that many cryptos are known for. However, it turns out that a portion of Tether users are dealing in the same volatile cryptos they are trying to evade, only not directly.
Kara Haas, a CPA who specializes in blockchain technology believes that Tether is setting its own rules, and this is dangerous. Speaking to MarketWatch, she said:
This has so many implications. They’re saying they can break that out into whatever they want. They could have a receivable on their book that owes them some money from another exchange and count that as an asset against their own Tether.
However, the head of marketing at Bitfinex was quick to dismiss the concerns. Kasper Rasmussen explained that the change in terms was to update the Tether community of the company’s progress. Bitfinex and Tether share their management.
He said:
Tethers remain completely stable and 100% backed so Tether’s reserves always equal or exceed the number of issued Tethers. The only change is that the composition of the assets that provide that backing includes a combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether.
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