r/cryptocurrency Mar 12, 05:42 PM
Tether - $188B+ unbacked promises Tether (USDT) is a stablecoin, which is a type of cryptocurrency that actively works to keep its valuation stable through market mechanisms.
Brock Pierce, Reeve Collins and Craig Sellars founded Tether in 2014. The project was originally called Realcoin, but they changed the name to Tether shortly after launch. The company behind Tether, Tether Limited, is responsible for issuing it & managing the reserves.
Bitfinex was the first major crypto exchange to offer Tether trading, which started in January 2015. Although Bitfinex and Tether Limited are separate entities, leaks from the Paradise Papers in 2017 revealed that Bitfinex officials set up Tether Limited.
How does Tether work
When a user tries to deposit fiat money and convert it to Tether coins, Tether Limited generates the corresponding amount of digital money that can consequently be sent, stored, or exchanged. In case when the user redeems the tokens for fiat money, the digital currency is destroyed from circulation, BUT Tether terms of service clearly state that they DO NOT ever have to offer redemptions of USDT for dollars (or even whatever IOUs and bits of string they may or may not have in reserve)!
► Be aware: Tether can withstand a "run" because they do not have to pay you if you ask. In fact if you're a US person, you're not eligible at all. If you're not a US person, it's at their discretion to deem you a "customer." Even if they do that, they can delay your withdrawal arbitrarily. Even if they don't do that, they can pay you out with whatever is actually in their backing!
Let's go deeper
A possible de-peg of USDT could create long-lasting implications on the price of assets like BTC, Ethereum, etc. Somehow exchanges integrated stable coins so much in their systems that a failure of one of them destroys the value of any other cryptocurrency. We watched this happening with the Terra USD (UST) stablecoin as the Terra Luna Ponzi collapsed.
Tether mints new supply and lends to various entities during bullish market conditions that expect to profit from BTC price and pay back the Tether borrowed (with an additional interest). A model that could work as a lending service but lacks long-term viability since it is based on pure speculation instead of growth developments and infrastructure for the sector.
Please note:
• Crafting any sort of Tether short is near impossible because everyone in the game (Tether, the exchanges, etc.) will all be against you if you're winning in the short (there's that scene in "The Big Short" where Mark Baum and crew know the subprime bonds are junk but they visit the ratings agency and they're not downgrading).
• In April 2019, New York Attorney General Letitia James obtained a court order enjoining Tether and BitFinex parent iFinex from further violations of New York law. It had been determined that BitFinex had borrowed at least $700 million from Tether's reserves to offset BitFinex corporate and client funds frozen (and ultimately seized) fr