What is Tether Cryptocurrency?
Tether is a cryptocurrency from Tether Limited. Tether is a controversial digital currency and there were claims that each token was backed by one USD. In March 2019, the company changed the backing of the company to include affiliate companies.
The cryptocurrency was referred to as stablecoin because it was originally designed to be worth one dollar. However, Tether Limited has claimed that token owners have no legal claim or right to convert Tethers to Dollars.
In April 2019, the legal counsel to Tether stated that the cryptocurrency was worth $0.74 each in cash and cash equivalents.
The inability of the company to publish an audit showing the reserves backing the cryptocurrency has been a major source of controversy.
How it Started
It all started with a whitepaper published in January 2012. The paper authored by J.R Willett described the possibility of building new digital currencies using the Bitcoin protocol. This idea was then implemented in Mastercoin, which was associated with the Mastercoin Foundation.
This Mastercoin eventually became the technological foundation for the Tether cryptocurrency. Brock Pierce, an original member of the Mastercoin Foundation, became a co-founder of Tether.
Realcoin is the precursor to Tether and the first tokens were created on the Bitcoin blockchain. This was achieved using the Omni Layer Protocol. Realcoin was renamed as Tether in November 2014.
By 2015, the popular cryptocurrency exchange platform Bitfinex adopted trading of the cryptocurrency on its platform. Interestingly, there have been links between Bitfinex and Tether as some Bitfinex officials are said to be involved in setting up Tether Holdings Limited. Bitfinex is currently one of the largest Bitcoin exchange platforms in the world.
Charlie Lee and The Omni Foundation, in June 2017, announced that the currency would be getting an Omni layer of Litecoin. Later that year, the company also announced that they would be launching more ERC-20 tokens for Euros and United States Dollars. This was going to be launched on the Etherum blockchain. These tokens were later confirmed.
Currently, there are four unique Tether tokens:
• Euro’s Tether on Bitcoin’s Omni layer,
• United States dollar tether on Bitcoin's Omni layer,
• United States dollar tether as an ERC-20 token,
• Euro tether as an ERC-20 token.
Between January 2017 and September 2018, there was significant growth in the number of Tethers outstanding; growing from about $10 million to about $2.8 billion. As of early 2018, about 10% of the total trading volume was based on the cryptocurrency. This increased to 80% in the summer of 2018. And as of August 2018, over $500 million Tethers were issued in August 2018.
But in October 2018, the value fell to $0.88 based on credit risk as it was observed that a lot of traders on Bitfinex exchanged tether for Bitcoin, thereby increasing the price of bitcoin.
A lot of users expected the company to substantiate its claim of full backing with an audit of its currency reserves.
Price Manipulation Claims
Studies by John M. Griffin and Amin Shams in 2018 reveals that some trading using Tether on Bitfiniex in 2017 might have been part of a Bitcoin price manipulation scheme. Reporters from Bloomberg also following this lead also found that there was some price manipulation of the cryptocurrency on the Kraken exchange.
Reacting to this, the CEO of Bitfinex and Tether, JL van der Velde, has come out to deny the claims. According to Van der Velde, Bitfinex nor Tether was involved in any price manipulation scheme. Issuing the cryptocurrency could not be used to increase the price of Bitcoin. According to the company’s website, Tether can be obtained by purchase for dollars or redeemed by exchanges.
Also, with regards to partnerships, Tether announced a new relationship with the Deltec Bank of the Bahamas in 2018. The company had claimed to deposit $1.8 billion with the bank. The claim, however, remains unconfirmed as the spokesperson from the Deltec Bank declined to pass any comments.
Security and Liquidity of Tether
The company plans to have all United States dollars in reserve. This would enable it to meet up with user’s withdrawal on demand. The company was not able to meet up with all the withdrawal demands in 2017 however.
In 2017, about $31 million USDT tokens were stolen from Tether. This caused a lot of attention to be placed on the security of the digital currency and the company had to suspend trading for some time. After putting in place some new upgrades and protection mechanisms, the company reopened for business in December 2017 and stated that the stolen Tether could not be traded.
On multiple occasions, Tether has promised users to present audits detailing the amount of the currency that are still outstanding. Sadly, the company is yet to fulfill this promise and this has caused several controversies on the exact amount of the currency in reserves.