You have probably heard of or used Tether (USDT), the US dollar-pegged stablecoin, which is the oldest and currently represents a backbone for the crypto market.
It is by far the most traded stablecoin and responsible for the vast majority of crypto trading volume. However, she is also the most controversial and her fiercest critics say she artificially props up the market, and they think she is a ticking time bomb that could collapse the entire market.
History
Founded in July 2014 by Brock Pierce, Craig Sellars and Reeve Collins, Tether (USDT), originally known as “Realcoin”, is a cryptocurrency commonly known as “stablecoin”, which aims to maintain a fixed exchange ratio of 1:1. with the US dollar. It is one of the first stablecoins created, initially built on top of the Omni network, which was a protocol layer for Bitcoin and which introduced the concept of stablecoin in 2012.
TOKEN INFORMATION
USDT can be traded over Ethereum, Omni, EOS and Tron networks.
Hong Kong-based Tether Ltd. is the only entity capable of altering the circulating supply of USDT tokens.
Tether uses an IOU issuance model where each USDT represents a $1.00 claim held in Tether reserves, which users can redeem at any time.
It works like this: users create new tokens by depositing fiat currency into bank accounts operated by Tether Limited, which leads to the creation of new USDT tokens on a 1:1 reserve basis with the US dollar.
If a user wants to redeem USDT, he can send tokens to an address controlled by Tether Ltd., which will destroy the tokens and transfer the fiat currency to the user's bank account.
In Bitcoin, USDT tokens are issued through the Omni Layer protocol, which was built as a layer on top of Bitcoin that allows the issuance of tokens representing any type of asset.
On Ethereum, USDT tokens are issued using the ERC-20 protocol standard to create tokens.
The great advantage of USDT (and other stablecoins) is that it allows traders and exchanges to have an alternative to fiat currencies, reducing or eliminating the need to use banks.
Tether is the third largest cryptocurrency in the world by market cap.
However, at the heart of the Blocksize Wars were deep questions such as Bitcoin's consensus rules and the reason for Bitcoin's very existence according to Satoshi Nakamoto's Whitepaper.
CONTROVERSIES AND THE CONNECTION WITH BITFINEX
Tether Ltd. has strong ties to Hong Kong-based Bitfinex, with both sharing the same parent organization, iFinex Inc.
That's right! In 2017, the Paradise Papers leak established that the same people control Bitfinex and Tether.
In 2019, the New York state attorney general found that the two companies engaged in a cover-up to hide losses to the tune of $850 million from customers and corporate funds, which disappeared in mid-2018.
The investigation found that iFinex made false statements about the support of Tether and the movement of hundreds of millions of dollars between the two companies to cover up the truth about the losses.
Also according to the New York Attorney General, Tether’s claims that its stablecoin is entirely backed by US dollars is a lie.
USDT critics argue that the stablecoin is not actually backed by actual US dollars. They say that Tether, like the Federal Reserve, prints its currency out of thin air. And as soon as people realize this in droves, the value of Tether will irreparably fall and market participants will lose all the money they thought was in a stable asset.
Exactly how Tether is supported, or if it is supported at all, has always been a mystery.
Since its founding in 2014, Tether has been the subject of ongoing controversy due to Tether's failure to provide audited financial statements proving that it has adequate reserves backing USDT. Historically, Tether has not disclosed its banking relationships, only recently announcing its banking partners, in November 2018, to quell rumors about its solvency.
In March 2019, Tether Ltd. updated its statement, claiming that its tokens are no longer 100% guaranteed by US dollar deposits.
Instead, Tether would be backed 100% by reserves, which include traditional currency, other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.
According to data compiled by CryptoRank, the total supply of stablecoins surpassed $180 billion in February 2022.
USDT was the first stablecoin in history and is the current leader in terms of capitalization.
On the other hand, USDC – another stablecoin, which is issued by the alliance of Coinbase and Circle within the Center Consortium and which meets all regulations and is fully guaranteed in cash in a transparent way, has gradually gained ground.
Next comes BUSD, Binance's stablecoin.
Market captalization of the 10 biggest stablecoins form january 2017 to february
16, 2022 (in billion U.S dollars)
Data from CryptoRank and Arcane Research revealed that stablecoins are growing faster than the rest of the market, with the total supply of stablecoins approaching $200 billion as of February 2022.
Tether (USDT) is currently the largest stablecoin with 44% market share, followed by USD Coin (USDC) with 29% and Binance USD (BUSD) with 20%.
USDC grew very quickly in 2021 and continued its strong growth in 2022, with growth of 20%. USDT, on the other hand, since the summer of 2021 has had stagnant growth, only 1% so far in 2022.
If USDC maintains its growth rate through 2022, it will become the largest stablecoin by market cap by the end of June 2022.
Other fast-growing stablecoins are Terra UST (UST) and DAI, with growth of 19% and 9% respectively in 2022.
TETHER AND BITCOIN
The thing is, Tether is by far the most popular way to trade Bitcoin. Of the top 11 most liquid markets for Bitcoin, according to CoinMarketCap, seven involve Tether.
This means that if Tether cannot be redeemed for real US Dollars, the theory is that the entire market could crash, collapsing it.
The moment people realize that all cryptocurrency prices are quoted in USDTs, not US Dollars, and that USDTs can only be converted to US Dollars when you don't need them, the music will stop in a second. This can create a problem, even if momentary.
Some investors believe that a loss of confidence in Tether is the “black swan” that could heavily affect the crypto market.
In fact, a sudden loss of confidence in Tether could result in a severe liquidity shock in the market and affect even other markets, as the sudden mass rescue of USDT could destabilize credit markets in the short term.
The systemic risk does exist, but the good sign is that, as we have seen, USDT has been losing marketshare among stablecoins, a movement that should increase as the market matures.