Tether
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Tehter (₮) is a cryptocurrency stablecoin launched by the company Tether Limited Inc. in 2014. In 2019, it surpassed Bitcoin and became the most traded cryptocurrency.
As of March 2024, Tether had over $100 billion in circulation.
What are stablecoins?
A stablecoin is a type of cryptocurrency where the value of the digital asset is pegged to a referrence asset, such as fiat money, another cryptocurrency, and exchange-traded commodity (e.g. gold) or similar.
If a stablecoin is backed 1:1 by a referrence asset, that would in theory make the stablecoin value track the price of the peg.
In reality, many of the cryptocurrencies marketed as stablecoins have not been able to prove that adequate reserves of the referrence asset are actually being kept, and the stablecoins have therefore been subjected to significant swings in market value as investor confidence in the stablecoin have waxed and vaned.
Tether is one of the stablecoins that have experienced violent swings due to its lack of transparency and verifiability regarding the claimed fiat reserves. In 2021, Tether Limited Inc. was fined for only maintaining full reserves during 27.6% of the days in the period from 2016 to 2018, and for failing to present audits showing sufficient asset reserves.
Development and launch of Tether
- In 2012, J.R. Willett published a whitepaper for a new cryptocurrency on top of the Bitcoin blockchain. This developed into the Mastercoin, and the Mastercoin protocol eventually became the technological foundation of the cryptocurrency Tether.
- The precursos to Tether, originally called Realcoin, was announced in July 2014 and the first tokens were issued on 6 October, 2014. In November, company CEO Reeve Collins announced that the name was to be changed from Realcoin to Tether. The company also announced that Tether was entering private beta which support for USTether, EuroTether, and YenTether. The company claimed that each version of the Tether was 100% backed by the pegged currency and that each Tether could be redeemed for the pegged currency at any time, but this has never been verified.
The company behind Tether
Tether Limited Inc. is a fully owned subsidiary of the British Virgin Islands-based company Tether Holdings Limited.
There are strong ties between Tether Holdings Limited and the British Virgin Islands-based company iFinex Inc., owner of the cryptocurrency exchange Bitfinex.
Bitfinex officials Philip Potter and Giancarlo Devasini established Tether Holdings Limited in the British Virgin Islands in 2014. Today, Jan Ludovicus is the CEO of both Bitfinex and Tether.
The appeal of Tether
The idea behind Tether, and most other stablecoins, it to permit users to enjoy the benefits of digital currencies (speedy transactions, security, privacy) without exposure to the drastic price fluctuations that are common in the cryptocurrency market.
Tehter has also been hailed as a safer harbour during cryptocurrency market turbulence. It has become a common practice among traders to switch to Tether when other cryptocurrencies are crashing.
Tether can be easily exchanged with other cryptocurrencies on most trading platforms due to its wide acceptance and high liquidity.
How to acquire Tether
Tether can be bought on numerous cryptocurrency exchanges such as Binance, Bitfinex, and Kraken, among others.
Is Tehter really fully backed?
Despite its advantages, Tether is not without controversy. Critics have raised concerns about whether Tether Limited, the company behind Tether, actually holds enough reserves to back all Tether tokens in circulation. The company underwent an unofficial audit in 2018 to prove its reserves, but that added fuel to the fire rather than calm things down among cryptocurrency investors and analysts. Tether has consistently failed to present any independent third-party audit made by a licensed accounting firm that clearly shows that the amount of tethers outstanding are actually backed 100% by fiat currency.
For many investors, the close relationship between the cryptocurrency Tether and Bitfinex – one of the largest cryptocurrency exchanges – is also cause for serious concern.
Notable events in the early 2020s
- The trading of the currency pair Tether-Bitcoin has grown huge, and by July 2021, Tether was tied to 50% of all Bitcoin trades.
- In May 2022, Tether Limited launched the MXNT, a token pegged to the Mexican peso.
- Througouth 2022, Tether was a safer haven when many companies in the cryptocurrency sphere crumbled.
- In May 2023, Tether announced plans to establish a Bitcoin mining operation in Uruguay that would rely on renewable energy.
- In October 2023, an article in the Wall Street Journal showed how Tether had been increasingly showing up in investigations regarding money laundering and other illegal activities. The article went as far as alleging that Tether was being used to fund the North Korean nuclear program. Tether Limited responsed by denying inadequate customer due diligence and explaining how they had aided governments and law enforcement by freezing a total of $835 million of assets.
- In December 2023, the authorities of Lugano in Switzerland began accepting payments in certain cryptocurrencies, including Tether. Since then, it has been possible to pay taxes and fines in Lugano using cryptocurrency.
- As of early 2024, the official Tether site lists 14 protocols and blockchains on which Tether has been minted.
Final thoughts
Tether and several other stablecoins aim to play a crucial role in the cryptocurrency market by offering price stability in an otherwise volatile environment. How this will actually play out remains to be seen, especially considering the widespread allegations against stablecoin organizations not keeping enough reserves.
As of now, Tether´s wide acceptance, coupled with the convenience it offers, makes it an attractive option for traders and investors alike. As with any investment, it is important to understand the risks involved and ensure proper risk management measures are taken.
The world of cryptocurrency is still largely unregulated, and as such, it’s especially crucial to do thorough research, understand the market dynamics, and not risk more than you can afford to lose.