On Tuesday evening, a Bloomberg news article sent a massive ripple through the crypto markets, pointing out that the company behind Tether is being subpoenaed and that the company in question is not co-operating.
One of the biggest questions in the markets right now is "whether there is enough US dollars to back up every Tether there is" and if not, what effects it has on the market.
Who is behind Tether? Many names behind Tether are the same as Bitfinex owners, so it's probably safe to say - same guys are running both.
What is Tether and why it was created
What is Tether? You have probably heard the term or noticed someone using the ticker USDT. USDT is the ticker/symbol for Tether.
While you can trade BTCUSD and many other cryptos against USD on most exchanges, you're not really exchanging against USD, you exchanging against USDT (Tether) and the price is based on the feed of exchanges, that actually support USD (Kraken and some others).
As there were no exchanges to offer exchange from cryptos to USD, Tether was created. Tether is pegged to US dollar value and when you want to sell your oh-so-volatile crypto holdings, you can exchange them to USDT, which, as being pegged to the real US dollar, is much less volatile than most cryptos.
This has many benefits, for example the transaction times - transferring USD might take hours or days, while transferring a cryptocoin Tether takes only minutes. No need for the exchanges to hold USD-denominated bank accounts and cutting down on transaction costs are some of the other benefits.
Via finder.com
What are the risks? Well - looking at the screenshot above, everything is hunky-dory. Unfortunately transparency is the thing it lacks. The peg will stand only as long as there is enough USD in the exchange to back every USDT there is. As there is more than 2 Billion USDT in circulation today, the question, whether Tether guys have those 2+ billion dollars in untouched reserves lying around somewhere in their bank accounts, gets asked louder and louder.
Now yesterday the Bloomberg news, that Bitfinex is subpoenaed shocked the markets, but later it turned out that the subpoena was 2 months old. Apparently Tether, since then, has terminated their relationship with their auditor and we still have no clarity.
There is a proof of funds document on Tether's homepage, dated September 28, 2017, but according to experts, this is worded in a way that doesn't prove the existence of the funds.
Proof of funds on Tether website
You can get a dedicated Tether wallet on their homepage, but just like most exchanges, they have currently locked down registrations for new users.
Homepage http://tether.to/
What can we do instead of using Tether? When/If the shit hits the fan, many market participants will be caught pants down. So if you have larger funds sitting on the markets, consider diversifying your holdings to Bitshares instrument BitUSD as an alternative. BitUSD is also pegged to $1 but every 1 BitUSd is backed by 2x BTS, Bitshares' own instrument and there is no centralized counterparty.
Grab a Bitshares account right here
I will take a look at one potential future stablecoin - DAI, in one of my next posts.
Sources used:
Business Insider
99bitcoins.com