Analyzing Tether (USDT): Is it Legit, or is it Just a Fraud?
Main liquidity provider for cryptocurrency markets.
What is Tether?
Tether is a US dollar-pegged stablecoin. It is the first stablecoin to be driven to market by Tether Limited and its partner company Bitfinex. Tether has a dollar-backed stablecoin (USDT) and a gold-backed stablecoin (XAUT).
What is Tether USD (USDT)?
Tether USD (USDT) is a dollar-pegged stablecoin being minted by Tether Limited. These stablecoins have supposed to have a 1:1 ratio on dollar reserves. However, they tend to break this ratio depending on the market demand. Still, Tether generally distorts the reserve ratio of 1:1.
What is Tether Gold (XAUT)?
Tether Gold (XAUT) is a gold pegged stablecoin being minted by Tether Limited. Its value has been backed by the gold bars from the London Good Delivery bar. Its value is dependent on the price of one troy fine ounce of gold per token.
Features of Tether USD
Tether USD can be accessed from Binance Smart Chain, Tron, Algorand, EOS, Liquid Network, Omni, Bitcoin Cash Standard Ledger Protocol, Solana, and Ethereum. Therefore, you can use various networks to spend Tether USD tokens on various platforms.
Pegged to USD
Because Tether USD is a dollar-pegged stablecoin, its value is being pegged to the value of USD. Therefore, USDT is not affected by price fluctuations.
Even though Tether Limited has been under scrutiny for some time under failing to meet reserve requirements, Tether Limited provides an overview of their assets in various currencies.
Features of Tether Gold
Tether Gold can be acquired from Tron and Ethereum networks. Therefore, you can keep these tokens on separate wallets to be traded on exchanges.
Every XAUT shows the investors that they own one troy physical gold on a specific gold bar. Because these tokens represent ownership rights on gold, they can be redeemed if they were being sold. Even more, XAUT owners can check their status of gold on every detail concerning precious metal. To redeem the token, users need to pass the verification process made by the gold storage company.
Tether Limited Case With New York Attorney General
Tether and other stablecoin corporations claim that they have all the reserves to pay back all the token holders. But when Tether Limited found out that they weren’t supporting their claims according to independent auditing, New York Attorney General opened a case against Tether Limited. In Tether and Bitfinex case, both corporations found out that they were hiding $850 million worth of losses. When the case became resolved, it was found out that stablecoin reserves were not enough to support all the Tether supply. Therefore, Tether and Bitfinex had to pay a fine worth $18.5 million and stop all the trading activities in New York. Moreover, these companies are required to submit any report to the Office of Attorney General of New York to comply with the prohibitions.
So, is Tether legit or a fraud?
Despite Tether provides a lot of liquidity to cryptocurrency markets, it doesn’t have sufficient reserves to support when investors require to redeem their currency units in dollars. If investors get suspicious of Tether and demand Tether to redeem all their money, Tether would likely go bankrupt as it does not have enough reserves to support all the investors’ claims. Therefore, Tether and Bitfinex might go out of business and the cryptocurrency market would be in a dire situation as Tether provides most of the liquidity in the market. Despite Tether’s crash would cause a liquidity problem, various stablecoins would fill the void, but it’d take a considerable amount of time. Even though Tether and Bitfinex were in a rocky situation, it’s too early to call Tether a fraud.