Cryptocurrency Regulations Wall Street

Will Fear, Uncertainty, and Doubt kill the “stablecoin”, Tether ?

On Tuesday, the cryptocurrency market took a hit close to all coins recording price falls. Few coins on the top 20 managed to maintain the green mark with only Tether and little known Vechain managing to post gains.

Tether has so far managed to live up its definition as a “stablecoin” whose value is relatively pegged to the U.S. dollar. Data from coinmarketcap.com shows tether has managed to maintain the $1 mark with occasional price shifts of between $0.9 and $1.8. Tether has a market capitalization of $2.2 billion and listed on Kraken, Bitfinex, Poloniex, Bittrex, among others.

Coinmarketcap.com

Critics have long maintained that tether has been issuing more USDT than it has in its reserves. It derives its stablecoin based on claims that it holds dollar reserves on a ration of 1:1 to tether tokens. The claims are yet to be confirmed as no external professional audit has been done to date.

According to reviewed terms of service, Tether Tokens will no longer be issued to U.S. Persons Beginning on January 1, 2018.

What is Tether

The tether project was established in late 2015, previously referred as realcoin. It currently trades on two tokens the USDT and EURT developed to be equivalent to the USD and EUR of the crypto world. It was initially issued based on the Bitcoin Blockchain system, but later shifted to the Litecoin Blockchain system in June last year.

It claims to be backed by dollar reserves on a ratio of 1:1 for each token in circulation. For a while now its relationship with Bitfinex remained unknown until both firms were issued with subpoenas. It acts as a source of liquidity for exchanges that do not accept fiat currencies such as

Dissolved Audit Relationship and Subpoena

In December 2017, both Bitfinex and Tether were issued with subpoenas by the U.S. Commodity Futures Trading Commission (CFTC). Tether also ended its relationship with its auditors the Friedman LLP and no statement was issued regarding the matter. Tether issued a comment explaining the matter stating:

“We confirm that the relationship with Friedman is dissolved.  Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.” Coindesk.

Weiss Rating and Bitmex Risk Report

The Weiss report is largely based on tether cryptocurrency market liquidity significance and its lack of comprehensive audit to verify its claim for 1:1 dollar reserve backing. It currently has a “proof of funds” page which is close to a year old which does not account include newly created tether token.

“Tether is the only “cryptocurrency” with trading volume that regularly exceeds that of its market cap. This is important to know because it tells us that Tether is used for trading A LOT. It’s one of the main sources of liquidity in the cryptomarkets. Liquidity is the lifeblood of a market. It’s what makes prices stable and seamless trading possible. ” The Weiss report explains:

Bitmex Research issued their detailed report explaining possible scenarios that signify tether might have enough dollar reserves. As currently, no bank facility holds tether reserves, Bitmex list Puerto-Rican-based Noble Bank as a potential bank for holding Tether’s cash reserves. Bitmex finally concludes with a recommendation signaling a short hold:

In our view, Tether has two choices:

  1. Reform the system to include KYC/AML procedures that allow the operator to easily block transactions or freeze funds. In order to do this, Tether may need to fundamentally change its technological architecture and perhaps leave the public blockchains. Essentially, Tether would just be turning into a traditional (or full-reserve) bank.
  2. Continue as is and risk being be shut down by the authorities at some point.

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Sam, has been a great contributor to the cryptonewsbytes team since 2017. He is also a crypto-enthusiast and talented market analyst. In his free time, you will find him traveling and exploring new places.

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