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CRYPTO REVIEW

Tether Review

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April 22, 2021 | 

JOHN K MWANIKI |  0 Comments | 

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Cryptocurrencies have taken over the financial world. Even though having been operational for some time, they struggle with volatility. That is where stablecoins come in. 

A stablecoin is a cryptocurrency whose value is pegged to a fiat currency. They operate through collaterals or some algorithms provided by a centralized company. With stablecoins, exchanges can trade fiat currencies without actually accepting the fiat.

Tether is the most popular stablecoin. It is pegged to fiat currencies. One of such currencies is the USD, thus forming a USDT. Its value remains at $1. Tether also pegs with EURO to form a EURT. While stablecoins are great for stability, they are still open to fiat currency price fluctuations. 

How Tether Works

Tether does not own its blockchain. It instead runs as a second layer on top of the other crypto blockchains. It uses major crypto platforms like Bitcoin, Ethereum, TRON, and Bitcoin Cash. It thus gets its security from the hashing algorithms of the underlying cryptos. 

Tether maintains its value through collateral. It currently claims that for every 1USDT, there is a corresponding 1USD. It means a single Tether coin is redeemable for 1USD. 

Bitfinex Connection 

Bitfinex was the first crypto exchange to introduce Tether as a tradable commodity in 2015. It marked the start of a revolution of cryptos, with stablecoins becoming a success. After a short period, the trading at risen with Bitfinex becoming the leading exchange in the world. 

The crypto world is made up of an inquisitive population. It did not take long before questions started arising on the origins of the Tether. Soon enough, the experts were studying Bitfinex's role in Tether. 

The investigations by a team of journalists led to the publishing of a report called Paradise Papers. It found Tether had a connection with Bitfinex. The two entities shared the same management and corporate structure. They had the same Chief Executive Officer, chief strategy officer, among other top executives. Philip Potter, the Tether founder, also handled several aspects of Bitfinex. The report thus concluded the two companies are linked. It credited Bitfinex with the launch of Tether. Tether then led to the crypto trend of 2017. 

John Griffin and Amin Shams, professors at the University of Texas and Ohio State University, wrote an academic paper on the same in 2018. The paper titled, Is Bitcoin Really Un-Tethered? The study established that a single address was responsible for pushing the rise of Tether. The returns which they then used to buy Bitcoin. The rise of the coin was engineered by an individual instead of different investors bringing cash to the exchange platform. It also said only 74% of the assets are backed by fiat currency.

Even though the Tether group denied the findings, Griffin and Shams provided enough evidence. They later conceded that the Tether assets were not fully backed by the time of the report. This led to the loss of $850million by Bitfinex. It then used funds from Tether to cover the difference.  The study brought much scrutiny to the place of Tether in safety and backing. It also led the US Commodity Futures Trading Commission to look into the operations of the crypto.

Risks and Concern 

Apart from the Bitfinex connection, Tether also has other concerns. These are; 

  • Lack of audits

While Tether claims it has a backing with fiat at ratio 1:1, no audit can confirm it. The project has had a mysterious audit history, having dropped its auditing partner in 2018.

The crypto world has since raised concerns about the same. To which the project responded by releasing a statement through the lawyers, not an audit firm. Sources still determined the report did not amount to any proper audit.The project cannot command any confidence without proper audits. 

  • Tether reserves legitimacy concerns 

The lack of the proper audits for Tether raises concerns about the coin's backup claims. Most of the holders tend to take up the coin with the backup in mind. However, they are all left in the dark.

Tether also doesn't provide any provision for holders to call for an independent audit. The reserves thus remain a promise which might not even exist in the real world. This makes trading Tether such a risky venture compared to other cryptos and fiat currencies. 

Importance of Tether 

Tether is more of a cryptocurrency like it is a fiat currency. The risks and concerns, though, make it a trickier choice. Unlike other cryptos, it does not come with the prospects of making profits on fluctuations. On the fiat side, it is more of a risky deposit. 

Still, Tether has grown. It means the users gain value. Here are some of the advantages of using the coin; 

  • Low transaction fees 

Cross-border money transfer is costly. It costs around $20 to use services like SWIFT. Additionally, the money also changes value during the conversion from the different currencies. Using Tether, however, is affordable. 
It's free to transfer money within the Tether wallets. Only standard blockchain network fees apply. 

  • Fast transactions 

Other than costs, cross-border transfers take time. The bank transfers can take from 1 to 5 business days to reflect on the receiver account. It takes even longer when the transaction occurs over a weekend or a public holiday.Tether transactions, on the other hand, take a few minutes to complete. 

  • Price stability 

Volatility remains one of the major crypto challenges. While it allows for trade opportunities, it also comes with additional risks. Any fall in prices means losses. With Tether, traders are assured of prices at all times.

Downsides of using Tether

Even though Tether comes with several importance, it has some downsides. These concerns include; 

  • Zero-interest 

Even though volatility is a crypto issue, traders tend to like it. It is what spurs the crypto trade. The traders believe they can buy on the low and sell on the high for profits. The value of Tether, however, is guaranteed. You are likely not to make any big returns from trades. 

  • Risky compared to bank deposits 

Tether has stationed itself as the best alternatives to fiat currencies. Unlike banks, though, Tether is a little riskier. The banks are regulated and have regular audit plans. The deposit is also insured and will never get lost in most cases. Tether is yet to have such detailed assured returns plans. The lack of proper auditing and tether reserves issues makes it an issue. 
 

Pros

Cons

Low transaction fees

Zero-interest

Fast transactions

High risk

Stability

Staying on sidelines

Trading Tether 

Currently, the easiest way to buy and sell Tether is through an exchange by other cryptocurrencies. Several crypto markets allow for the exchange. You can also buy Tether using fiat currencies.

Better still, several crypto exchanges provide for Tether trading. These exchanges provide for USDC/USD trading pairs. Top of these exchanges is Bitfinex, Kraken, and Exmo. 

Like the other cryptos, you need a safe wallet to store Tether. Some of the top wallets for Tether storage are Ledger, Trezor, and Exodus. You can also opt for the Tether web interface wallet. 

Tether Competition 

Tether operated for some time without any formidable competition. This was due to the hurdles by governments before registering a stablecoin. This, however, changed in 2018 with the introduction of Gemini and Paxos. 

The USD also backs these stablecoins. They trade at a ratio of 1:1. Even though they find it hard to penetrate the market over Tether, they assure security. 
 

Currency

Tether

Gemini

Paxos1

Value ($)

1

0.983

0.99931

Market cap ($)

49,321,089,591

124,835,014

878,158,566

Volume ($)

136,080,522,481

10,755,454

93,476,318

Circulating supply

49,320,928,121

126,617,825

878,839,538

Is Tether the Future of cryptocurrencies?

Most of the crypto traders have placed Tether as the future of cryptocurrencies. Even though it has come under scrutiny over the years, the coin remains the best stablecoin. It has continued to gain users even when the value of other cryptos goes down. 

Tether already has a market capitalization of over $5 billion with $2.7 billion daily transactions. This comes with data showing that it has a corresponding amount in dollars in a bank account. It means it is fully backed. 

Such movements are surprising given the concerns and risk that comes with Tether. One of the explanations is that the crypto market does not care. They already know about the concerns and are willing to take risks. The holders would rather have stability while holding crypto.

Another reason for the development of Tether rise is the extensive use cases. The usefulness of Tether has given it backing from both the crypto and the fiat currency world. Most of the top industry chiefs believe Tether is great for fast and cheap transactions. 

Tether is becoming useful in other traditional banking systems. For example, the Office of the Comptroller of Currency allowed federal banks to use stablecoins in service provision. Several other countries will be following suit in the adoption of stablecoins for mainstream use. 

Tether remains cryptos' future as the other stablecoins are finding it hard to break into the market. The increasing regulations are making it hectic for other stablecoins to launch.

Bottom Line 

Tether remains one of the most important crypto projects. It comes with the needed stability and blockchain access. It only has to uphold trust by encouraging audits. It, however, remains the future of cryptocurrencies. 

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