What is Tether?
Tether (USD₮, EUR₮, XAU₮) is a cryptocurrency that is pegged to the value of the U.S. dollar. It is one of the most popular stablecoins, which are cryptocurrencies that aim to maintain a stable price and avoid volatility. Tether is issued by a company called Tether Limited, which claims to have reserves of fiat currency or other assets that back up each Tether token. However, Tether has faced controversy and regulatory scrutiny over its reserve claims and its relationship with the cryptocurrency exchange Bitfinex.
Tether – Real time price
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Controversy and regulatory scrutiny
Tether has been involved in several legal disputes and investigations over its reserve claims and its relationship with Bitfinex, a cryptocurrency exchange that shares the same owners and executives. Some of the major cases are:
- In 2019, the New York Attorney General accused Tether and Bitfinex of covering up an $850 million loss of customer funds that were allegedly transferred to a shady Panamanian company called Crypto Capital. Tether and Bitfinex settled the case in 2021 by paying an $18.5 million fine and agreeing to stop serving customers in New York.
- In 2020, the Commodity Futures Trading Commission (CFTC) subpoenaed Tether and Bitfinex to provide documents related to their reserve claims and their role in the 2017 Bitcoin price surge. In 2021, the CFTC fined Tether $41 million for lying about its reserves and Bitfinex $1.5 million for allowing U.S. customers to trade on its platform without proper registration as reported by Bloomberg.
- In 2021, the U.S. Department of Justice (DOJ) reportedly launched a criminal probe into whether Tether and Bitfinex executives committed bank fraud by concealing from lenders that their transactions were linked to crypto as also reported by Bloomberg. The DOJ has not confirmed or denied the existence of the investigation.
Response from Tether and Bitfinex
Tether and Bitfinex have generally denied any wrongdoing and challenged the allegations made by the regulators and prosecutors according to Reuters. They have also settled some of the cases without admitting or denying the charges and agreed to pay fines and comply with certain conditions.
For example, as part of the settlement with the New York Attorney General, Tether and Bitfinex agreed to stop serving customers in New York, submit quarterly reports on their reserves and transactions, and undergo an independent review of their compliance policies. Tether and Bitfinex have also claimed that they are cooperating with the authorities and that they are committed to transparency and accountability.
How does Tether work?
Tether works by issuing digital tokens that are pegged to the value of a fiat currency, such as the U.S. dollar, euro or even gold (USD₮, EUR₮, XAU₮). Tether claims that for every token it issues, it holds an equivalent amount of fiat currency or other assets in its reserves. This way, Tether aims to maintain a stable price and avoid the volatility that affects other cryptocurrencies.
Tether users can buy or sell Tether tokens through various cryptocurrency exchanges that support them, such as Binance, Crypto.com, or Cointree. They can also transfer Tether tokens to other users or redeem them for fiat currency through Tether’s own platform. Tether tokens can be used to trade other cryptocurrencies, to hedge against market fluctuations, or to send or receive payments across borders.
Advantages
- Tether offers stability and reliability, as it is pegged to the U.S. dollar and maintains a stable price regardless of market fluctuations.
- Tether enables fast and cheap transactions across the blockchain network, without the need to go through fiat currencies or intermediaries.
- Tether is widely available and accepted on many cryptocurrency exchanges and platforms, making it easy to buy, sell, trade, or transfer other cryptocurrencies with Tether.
- Tether can be used as a hedge against volatility or a store of value in the cryptocurrency market, as it preserves its purchasing power and reduces the risk of losses.
Disadvantages
- Tether lacks regulation, transparency, and accountability, as it has faced several legal disputes and investigations over its reserve claims and its relationship with Bitfinex.
- Tether may not be fully backed by fiat currency or other assets, as it has not provided conclusive proof or independent audits of its reserves.
- Tether may pose a security risk, as it has been hacked or stolen several times in the past, resulting in millions of dollars worth of losses for users.
- Tether may lose its stability or value if there is a loss of trust or confidence in its peg, its reserves, or its issuer.
How secure is Tether?
Tether’s security depends on several factors, such as the technology, the reserves, and the regulation of the cryptocurrency.
On the technology side, Tether is secure as it runs on the Ethereum blockchain, which is a decentralized and tamper-proof network that records and verifies all transactions. However, Tether is also vulnerable to hacks or thefts that may target its users, its issuer, or its exchanges. Therefore, users should be careful about storing their USDT in secure wallets or reputable exchanges.
On the reserves side, Tether’s security depends on whether it has enough fiat currency or other assets to back up its tokens. If Tether does not have sufficient reserves, it may not be able to honor its redemption requests or maintain its peg to the U.S. dollar. This could lead to a loss of trust or confidence in Tether and a collapse of its value. However, Tether has not provided conclusive proof or independent audits of its reserves, making it difficult to verify its claims. Therefore, users should be aware of the risk of holding USDT that may not be fully backed by fiat currency or other assets.
On the regulation side, Tether’s security depends on whether it complies with the laws and rules of the jurisdictions where it operates. If Tether violates any regulations, it may face legal actions or sanctions from the authorities, such as fines, bans, or seizures. This could affect its ability to operate or service its users. Therefore, users should be aware of the potential legal risks or uncertainties associated with using USDT.