Tether (USDT), a stablecoin that is pegged to the US Dollar, might be on the verge of a significant turnaround if the latest statement from the company’s CTO is anything to go by.
Tether Has Long Been Regarded as the Soft Underbelly of the Crypto Sphere
Tether has been mired in a conglomeration of controversies over the past few years. Nonetheless, it is currently the third-largest cryptocurrency by market capitalization, as per a tabulation by CoinMarketCap. Tether tokens, developed by the crypto exchange BitFinex and which trade under the symbol USDT, were initially backed by an equivalent number of US dollars. This meant that each USDT would always equal 1 USD. However, back in February 2019, Tether changed this policy (retrieved from archive.org) to one where the Tether coins are now “100%” backed by its “reserves”. For reference, these reserves include currency, cash equivalents (such as US Treasuries), as well as other assets and receivables from loans made by the company to third parties. Controversially, Tether also maintains exposure to relatively opaque Chinese Commercial Papers (CPs). Due to this deliberate vagueness surrounding Tether’s reserves, the company has remained a somewhat perennial recipient of scathing criticism. In fact, there were rumors that the company had also invested in Evergrande, the distressed Chinese real-estate behemoth that recently defaulted on its offshore bonds. As if the deliberate obfuscation around its reserves was not enough, Tether is also a case study in corporate misgovernance. For instance, a 2019 investigation by the New York Attorney General concluded that the company had hidden “a loss of $850 million of co-mingled client and corporate funds.” In the ensuing settlement agreement, which barred the company from doing business in New York, it was revealed that Tether coins in circulation remained virtually unbacked for certain periods of time. Then, in August 2021, Tether released an attestation of its reserves as of the 30th of June 2021. As per the document, out of its total assets of $62.773 billion, only $6.282 billion or just around 10 percent of Tether’s total assets were in the form of cash and bank deposits, while nearly 50 percent of the total assets were in commercial papers. Of course, this revelation hardly served to assuage the concerns of Tether’s critics. On the 15th of October 2021, the CFTC ordered Tether and BitFinex to pay fines totaling $42.5 million for falsely claiming on a number of occasions that the stablecoin was fully backed by US Dollars. As evidence, the CFTC cited the period from June to September of 2017 when the circulating supply of 442 million Tether coins at the time was never backed by deposits of more than $61.5 million. Rather than address this controversy head-on, Tether chose to pay the fine in order to settle with the CFTC. Finally, Tether has also been accused of manipulating the price of Bitcoin. As a refresher, back in 2018, two researchers had identified certain trading patterns on Bitfinex to postulate that Tether coins were being used to artificially inflate Bitcoin’s price. Readers should note that Bitfinex and Tether have both vehemently denied these allegations. With the primer on Tether’s controversies out of the way, let’s discuss the subject of today’s post.
The Stablecoin is Now on the Verge of Announcing a Major Development
As per a tweet by Tether’s CTO, Paolo Ardoino, the company is on the verge of announcing a ‘historical” development:
(Yes yes, announcement-ception) — Paolo Ardoino (@paoloardoino) February 11, 2022 While the nature of this development is as yet unclear, speculations abound. For instance, has Tether finally conducted a comprehensive third-party audit that would go a long wave in restoring credibility to the stablecoin project? Or does this imminent announcement relate to a potentially game-changer partnership? I guess we’ll know soon enough. Readers would remember that the prolific short-seller Hindenburg Research had offered a $1 million bounty to anyone who would be able to provide “information leading to previously undisclosed details about cryptocurrency “stablecoin” Tether’s backing.” A conclusive and independent third-party audit would once and for all lay to rest such fishing attempts. Readers should note that stablecoins such as Tether do serve an important function in the crypto market. Since their values are not supposed to budge from their stated pegs, stablecoins often act as a medium of exchange, allowing crypto investors to conveniently convert one cryptocurrency to another. Tether also allows its holders to exploit arbitrage opportunities by facilitating the buying and selling of cryptocurrencies across various exchanges in multiple jurisdictions. For instance, Tether plays an important role in normalizing Bitcoin’s prices in high-premium countries by attracting flows from low-premium ones. If the stablecoin is now able to convincingly push beyond its less-than-stellar past, it will help to improve the health of the entire crypto ecosystem.
