Tether is the highest 8th cryptocurrency in market cap at the time of writing. Tether is called a stablecoin, it is designed to always be worth $1.00, which claims that each token issued is backed by one United States dollar.
The coins are distributed by a company called Tether Limited, governed by the laws of the British Virgin Islands.
Tether was specifically designed to build the necessary bridge between fiat currencies and cryptocurrencies and offer stability, transparency and minimal transaction charges to users. It is pegged against the US dollar and maintains a 1-to-1 ratio with the US dollar in terms of value.
It was launched as RealCoin in July 2014 and was rebranded as Tether in November by Tether Limited, the company that is responsible for maintaining the reserve amounts of fiat currency. It started trading in February 2015. In November 2017, it was allegedly hacked with $31 million worth of Tether coins stolen, after which a hard fork was performed. In January 2018, it hit another hurdle as the necessary audit to ensure that the real world reserve is maintained never took place. Instead, it announced it was parting ways with the audit firm.
Many have raised concerns that tether is being issued by the people who own the Bitfinex exchange. Critics argue that there should not be such a close relationship.
But the issues run deeper than that. Fears have been raised that Tether Limited doesn’t actually hold enough U.S. dollars to back all the digital coins in circulation. These rumors have been circulating for a few months. In addition it has also been releasing more coins onto the market In January, alone Tether has released 850 million new digital tokens. The company has been increasing the number of coins in circulation over the past few months, and this has coincided with the record highs seen in cryptocurrency prices, causing some critics to suggest there is price manipulation going on.
So far, tether has lived up to its description as a so-called stablecoin, whose value is pegged to the U.S. dollar. The chart above shows tether has generally hovered around $1, occasionally dipping as low as $0.80 or jumping as high as $1.50.
For the last month, negative sentiment about Tether and Bitfinex built up on social media. It started with Noble, Tether’s old banking partner. Rumours had been circulating for a while when, in their quarterly analysis, Bitmex research found that Tether had stopped banking with Noble and moved the funds out of Puerto Rico destination unknown.
On October 6, some users noticed Bitfinex was now banking with HSBC. The next day Bitfinex responded to the rumours about their financial situation and said things were largely fine. On October 10, The Block broke the news that Bitfinex had paused USD deposits (not withdrawals) but expected the situation to normalise within a week.
This news spooked the market. Tether started trading at a premium against Bitcoin and other stablecoins as more and more people tried to get rid of their USDT. Sellers temporarily accepted as little as $0.92, but the price quickly recovered and has since been trading at a relatively stable 3-4% discount. Finally, on October 16, Bitfinex announced a new “improved and increasingly resilient system for depositing fiat currencies” and Tether found a new home in the Bahamas.
Against the background of Tether fall, BTC and ETH were growing. But there is a significant difference in the rates between USD and USDT. At one point, the price spread between the value of Ethereum on Bitfinex and Coinbase surpassed 10%, which is nearly unheard of in the scope of the crypto market. While USDT is one of the most liquid crypto assets in this market, the order books of the BTC/USDT trading pair couldn’t handle this unprecedented liquidation, resulting in Bitcoin’s unrelenting move above $7,500 on Tether-enabled exchanges.
With Tether’s dip, it was seen that stablecoins like TUSD and PAX reported better performance with the former already showing 1.5x trade volume on Binance, with most investors opting to either cash out into other cryptos or shift from Tether to other platforms.
In their recent news, Tether, the parent company of USDT stablecoin, announced a token burn that will permanently eliminate 500 million units.
It is currently unknown what has caused the token burn, although many believe that it was a result of the recent controversy.
While the recent listing of USD Coin on Coinbase will attract more attention to an emerging stablecoin, Tether is still not giving up. This is evident due to the fact that it is currently the only coin in the top 20 that is trading in the green. While its price is still below $1.
What lies ahead is very uncertain, only time will tell.