Tether Cryptocurrency (USDT)? Why Is It So Controversial? All you need to know


Tether Coin
Image Source: Investopedia

Investors have recently shown interest in Stablecoins, a sort of cryptocurrency with lower volatility. Tether is the most valuable Stablecoin in terms of market cap (USDT). Tether is a term you’ve probably come across on the internet. In today’s post, I’ll show you all you need to know about it. 

What is Tether 

Tether (USDT) is a blockchain-based cryptocurrency whose tokens are backed by an equivalent number of U.S. dollars, making it a stable coin with a price tied to USD 1.00. Stable coins mirror typical fiat currencies, such as the dollar, Euro, or Japanese Yen, stored in a separate bank account.

Tether tokens, created by the cryptocurrency exchange BitFinex, are the native tokens of the Tether network and trade under the USDT sign. USDT is the fifth-largest cryptocurrency by market capitalization, valued at more than $68 billion as of October 2021. 

Understanding Tethers 

Tether is a Stablecoin, a type of cryptocurrency that aims to keep cryptocurrency valuations stable, instead of the enormous swings seen in the prices of other famous cryptocurrencies such as Bitcoin and Ethereum

Instead of being utilized as a medium of speculative investments, this would be used as a means of trade and a form of wealth storage. Tether falls under the category of fiat-collateralized Stablecoins. This implies that each crypto coin in circulation is backed by a fiat currency such as the U.S. dollar, Euro, or Yen. 

Crypto-collateralized stablecoins, which employ cryptocurrency reserves as collateral, and non-collateralized stablecoins are two other stablecoin varieties. non-collateralized stablecoins lack collateral but function similarly to a reserve bank to maintain the appropriate quantity of tokens, depending on the economic circumstances.

Tether was created to provide consumers with stability, transparency, and low transaction fees by bridging the gap between fiat currencies and cryptocurrencies. 

It is tied to the U.S. dollar and maintains a one-to-one value ratio with the U.S. dollar. On the other hand, makes no assurance of any right of redemption or exchange of Tethers for real money – that is, Tethers cannot be exchanged for U.S. dollars. 

According to a survey conducted by CryptoCompare, a worldwide cryptocurrency market data source, bitcoin to Tether trading continues to account for the vast majority of BTC exchanged into fiat or stablecoin.

In February 2021, USDT accounted for 57% of all bitcoin transactions. 5 Tether is still a significant source of liquidity in the bitcoin industry. Tether was introduced as RealCoin in July 2014 and renamed as Tether in November by Tether Ltd., the business in charge of maintaining fiat currency reserve balances. It began trading in February of 2015. 

Popular Tether Controversy 

Tether was allegedly hacked in November 2017, with $31 million in Tether currencies taken, resulting in a hard fork. In January 2018, it struck another stumbling block when the required audit to guarantee that the real-world reserve was maintained did not take place. 

Instead, it announced its separation from the audit company, following which authorities issued a subpoena. Concerns have been raised about whether the business, criticized for lacking transparency, has adequate reserves to support the coin. 

In April 2019, New York Attorney General Letitia James charged iFinex Inc., the parent firm of Tether Ltd. and operator of cryptocurrency exchange Bitfinex, concealing an 850 million dollar loss co-mingled customer and corporate money from investors.

 According to court documents, these monies were entrusted to a Panamanian firm named Crypto Capital Corp. without a contract or agreement to manage consumer withdrawals. After the money went missing, Bitfinex allegedly grabbed at least $700 million from Tether’s cash reserves to cover the difference. 

The corporations stated in a statement that the papers: “were made in ill faith and contained several incorrect allegations. On the contrary, we have been informed that these Crypto Capital sums have been seized and secured rather than lost. We have been aggressively attempting to enforce our rights and remedies and get the release of that cash. Unfortunately, the New York Attorney General’s office appears determined to undermine such efforts, to the detriment of our consumers.” 

Tether tokens may be purchased and sold on prominent cryptocurrency exchanges like Binance, CoinSpot, BitFinex, and Kraken

What Is the Purpose of Tether? 

Tether is beneficial to cryptocurrency investors because it allows them to escape the severe volatility of other cryptocurrencies. Furthermore, USDT (rather than the U.S. dollar) eliminates transaction costs and delays that impede trade execution in the cryptocurrency market. 

How to buy Tether 

Individual cryptocurrency traders will often purchase Tether on a cryptocurrency exchange such as Binance, Kraken, or Coinbase. You establish an account with any of these or other firms, deposit fiat currency, and use it to purchase Tether or another cryptocurrency. 

How to store Tether 

While the USDT is traded on a global market, it can be exchanged for other cryptocurrencies. Tether holders will utilize a cryptocurrency wallet like Trezor, Ledger, Exodus, or Mycelium to store their coins away from the exchange on the blockchain when they are not expecting to use them for cryptocurrency transactions. 

What Is the Point of the Tether Token? 

Investors can use Tether (USDT) to escape the high volatility of other cryptocurrencies. A trader may limit their risk of being exposed to a rapid decline in the price of cryptocurrencies by converting the value to USDT. Transferring BTC into Tether rather than the US dollar is also more cheaper.

Is Tether considered a Stablecoin? 

Tether is, indeed, the first and most well-known Stablecoin in the cryptocurrency industry. True USD (TUSD), Paxos Standard (PAX), and USD Coin are some more stablecoins (USD). 

How can Tether maintain its $1 price? 

While Tether has already fallen below $1 (and climbed over $1), the stablecoin can maintain its value since it is tied to a corresponding fiat currency fund and is entirely guaranteed by Tether’s reserves. 

Unique Features of Tether USDT 

The primary distinguishing feature of USDT is that it is always worth 1 U.S. dollar. As a result, it is highly beneficial for holding or transferring value because it is always worth the same amount. The value of Bitcoin, Ethereum, and other significant cryptocurrencies often fluctuates based on market supply and demand. 

By design, USDT is always worth a dollar. The parent business of Tether claims to have assets equivalent to the absolute market value of its currency. That is, for every USDT in circulation, it possesses a dollar in cash or highly liquid investment assets. 

Tether is an excellent alternative to conventional USD for many uses, including overseas transfers and trading crypto without converting back into dollars, if you believe Tether and its accountants in the Cayman Islands. But there are so many unknowns regarding Tether’s assets and motivations that it’s critical to read the controversy section below before committing to USDT for your banking requirements. 

However, once in the crypto marketplace, it trades similarly to any other currency that uses blockchain technology. That means you may trade Tether on any cryptocurrency exchange that accepts USDT. 

Notable Happenings: While many cryptocurrencies have been relatively uncontroversial, Tether has a more complicated background. Tether is inextricably linked to bitcoin exchange Bitfinex, with both companies sharing CEO JL van der Velde and other staff. 

Because of this strong association, experts are skeptical of Bitcoin price manipulation via Tether and Bitfinex. Tether and Bitfinex were both examined by the New York Attorney General, who claimed that, despite its promises, Tether was not backed by equivalent U.S. dollar assets. 

The two firms were also accused of concealing $850 million in missing cash and deceiving investors about their currency backing. To settle the issue, Bitfinex and Tether agreed to pay the State of New York $18.5 million and fulfill new transparency reporting standards in February 2021 without admitting or denying the claims. 

The Commodity Futures Trading Commission (CFTC) fined Tether $41 million in October 2021 for making false representations about its U.S. dollar holdings. Bitfinex was also fined $1.5 million. Thanks for reading and have a good day.

Disclaimer: This guidance is available solely for educational reasons. Because cryptocurrencies are highly volatile assets, they are unstable. So, if you’re considering investing in cryptocurrencies, do your research and consult with a financial professional first.

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