In the traditional world, eMoney is the electronic version of “fiat” currencies – dollars, yen, etc. The “money” you see in your mobile banking app is eMoney. In the blockchain world, stablecoins are the electronic version of “fiat” currencies – dollars, yen, etc. There are other versions of stablecoins – algorithmic, crypto-backed, asset-backed – but let’s ignore them for the sake of this post.
Tether is the big-daddy of stablecoins and issues stablecoins on several blockchains – Bitcoin (Omni and Liquid Protocol), Ethereum, EOS, Tron, Algorand, SLP and OMG.
The Tether stablecoins are “backed” by the US dollar, the euro, and the offshore Chinese yuan. If you are a crypto trader/investor, you must have used USDT, Tether’s US Dollar “backed” stablecoin. USDT has a daily trading volume of over $73 billion – more than bitcoin and ether combined!
Then there’s Tether Gold – a 1 XAUT token representing “one troy fine ounce of gold on the London Good delivery bar”.
1. What I like about Tether
USDT is an extremely useful risk management tool for crypto traders. If you think the markets are too volatile for your liking, you can easily convert your crypto to USDT. There are other competing stablecoins, but by far USDT is the largest and has the most trading pairs.
The other thing I like about USDT is that it makes it very easy and cheap to receive and send money around the world.
The third thing I like about it are the interest rates! As of earlier this year, you could earn more than 14 percent per year on your USDT deposits. Even at the current 10.5 per cent rates, it pays much more than the bank’s fixed deposits. But of course, there are many risk factors to factor in.
Fourth, since the Tether stablecoins are “centralised”, they have some security features that are not common in the crypto ecosystem. If your account has been compromised and a hacker is trying to steal your funds, a “5-day hold” can be triggered.
2. What I Hate About Tether
According to its website, Tether’s platform is designed to be “completely transparent at all times.” But in reality it is not so. Firstly, it includes several legal entities. According to Tether’s whitepaper, Tether Limited is a Hong Kong company wholly owned by the British Virgin Islands company Tether Holdings Limited.
Then there is Tether Operations Limited which holds the copyright to Tether’s website. and TG Commodities Limited which operates Tether Gold. The 2017 Paradise Papers leak revealed that the Bitfinex crypto exchange and Tether are controlled by the same people – iFinex Inc.
I haven’t been able to do a thorough due diligence on these companies.
For a very long time, the Tether website stated that “every Tether is always backed 1-to-1 by the traditional currency held in our reserves.” In early 2019, it switched to Tether backed by a “reserve,” which consists of loans given to third parties, including affiliated entities. I think it’s a recipe for disaster!
There are reports that only 2.9 percent Tether was backed by cash and over 65 percent is backed by commercial paper. Moral of the story so far – Tether may be a huge scam waiting to be uncovered wide.
3. What scares me about Tether
My first fear is that Bitfinex will go bust. And it’s probably worth it too. This hacked before Lost another 1,500 bitcoins in May 2015.
So this got hacked in August 2016 and lost 119,756 BTC. Unable to bear these losses, it gave its customers a “36 percent haircut”. It even took money from customers who didn’t have bitcoins at the time of the hack!
In September 2021, Bitfinex “accidentally” Paid $24 Million in Fees When sending $100,000 Ether. The actual fee was $33. just a few days ago, Tether and Bitfinex Are Settled A case of “allegedly” making misleading statements and carrying out illegal transactions. They will pay $42.5 million to settle civil fees from the US Commodity Futures Trading Commission (CFTC).
Many believe that the “real use” of Tether is to keep the price of bitcoin high! The media loves to bash Tether and it creates a lot of FUD. What if this FUD is true and Tether gets busted? This is my second fear.
I think this will have a massive negative impact on the entire crypto sector and will erode hundreds of billions of dollars in the crypto market cap.
Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. you can follow him on linkedin.
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