Tether: A Necessary Evil, Or Crypto Salvation?

Dawid Paluch
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It is one of the most controversial topics this year. Tether has been in the news for months. New projects, scandals, and lawsuits involving USDT have made headlines in 2019. Despite all of that, it is still the most powerful stablecoin.

This story consists of accidental creation of 5 billion of USDT, problems with New York Attorney General, launching a Blockstream’s Liquid sidechain, allegations about false claims, and many more. Let me take for the Tether’s journey.

Not so transparent beginnings

Tether was created in July 2014. Oh sorry, actually Realcoin was created back then. Brock Pierce, a controversial entrepreneur responsible for the creation of EOS and a former board member of Bitcoin Foundation, stands behind Realcoin. In November 2014, the name was changed to “Tether” (ticket: USDT).

The main principle was simple: to create a stablecoin for crypto arbitrage, pegged 1:1 to fiat. It was quite a revolution in the cryptocurrency industry because back in 2014 there weren’t many exchanges which accepted fiat. So, Tether allowed users to replace real money (mostly dollar) with other digital coins. It seems perfect, doesn’t it? But is it, though?

The Bitfinex era

Shortly after the creation of Tether, the stablecoin integrated itself with Hong Kong-based trading platform Bitfinex. It happened in January 2015. To this day, the company behind USDT shares the same leadership as Bitfinex. And, according to many experts, that is the main reason why stablecoin has had so many troubles in recent years. While the exchange denied owning Tether and called it a ‘sister company,’ but many crypto people doubted it. What’s more, both companies hid that collaboration until the journalistic investigation in October 2017 (famous “Paradise Papers”).

What are the problems you may ask? First and foremost, there is the ‘all coins backed’ case. The company claims that it has all Tether backed 1:1 by US dollars and euros. Where is the pickle? Tether doesn’t allow any external financial audit to confirm that. ‘We have money, believe us’ doesn’t work that well for people in the digital world. The lack of transparency puts a shade on the most popular stablecoin.

Another controversial topic is centralization. Tokens are issued only by one private company. Because of that, Tether has been accused of manipulating the market many times. The company has attempted to put each of these allegations to sleep by threatening lawsuits and other legal actions.

Law concerns

In December 2017, the Commodity Futures Trading Commission (CFTC) issued subpoenas for both the stablecoin company and the exchange company. Of course, Tether promised to get better and conduct a full audit. But, you know, it hasn’t happened so far.

In April 2019, New York Attorney General Letitia James obtained a court filing, which claimed that iFinex Inc. (the company behind Bitfinex) lost $850 million and covered that lose with Tether’s money. Once again, the public wasn’t aware of such doings. Two companies went from defense to offense, attacking New York’s AOG and accusing it of misconduct and false claims. Later, New York banks added fuel to the fire, closing accounts of iFinex. While that doesn’t prove anything, it puts another shade on the stablecoin and its operations.

For the sake of the article, I need to remind you that we are walking between accusations, hearsays, and claims. Nothing significant has been proven so far, so we really can’t say anything with certainty. It is important to remember that.

In the midst of the whole prosecution, Tether made another faux pas. The company accidentally created $5 billion in tokens. How did it happen? It supposed to be $50 million worth tokens, but someone…misplaced a decimal point. What difference does it make if your boss writes you a check for $5,000 or $500,000? This is only a number, you know.

Don’t get it wrong. I’m not making that story to discourage you from buying USDT. I don’t have any agenda here. All of that happened.

Of course, the stablecoin develops itself. Lately, it has launched on Blockstream’s Liquid Network and on Algorand blockchain.

The competition…exists

One would assume that after those scandals, lack of transparency, and the whole centralization crypto people would move on from Tether and use other stablecoins. Especially that there is a large variety of choice. Projects such as USD Coin (USDC), True USD (TUSD) and Paxos Standard (PAX) have clear records, or at least, they don’t have as many scandals as Tether.

That isn’t the case, though. According to stablecoinswar.com, a stablecoin data aggregation site, Tether is responsible for almost 95% of all stablecoins’ trading volume.TrueUSD, which takes the second place, has less than 3%.

So, what does attract the crypto people to USDT? Liquidity and availability are key. Despite the numerous failures, USDT is still the best stablecoin to trade with. The company behind it may be shady (at least), but the token itself performs better than most of its competition. It proves once again that people don’t care about scandals and mistakes made by companies. Users only want a fast, accessible, and easy to use stablecoin. Nothing else matters.

What does the future hold? Tether has its problems, and they can hurt the company, but it will probably last. Something really big would be needed to dethrone USDT. As of today, there is nothing of that magnitude on the horizon. Tether resembles Bitcoin in many areas. And, just like Bitcoin, it will probably survive every minor or major scandal.

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