Analyze Tether (USDT): Is it legal or just fraud? | Author Ata Tekeli | The Capital | July 2021
The main liquidity provider in the cryptocurrency market.
What is a tether?
Tether is a stable currency pegged to the U.S. dollar. It is the first stablecoin introduced to the market by Tether Limited and its partner company Bitfinex. Tether has a USD-backed stablecoin (USDT) and a gold-backed stablecoin (XAUT).
What is Tether US Dollar (USDT)?
Tether USD (USDT) is a stable currency pegged to the US dollar minted by Tether Limited. The dollar reserve ratio of these stablecoins should be 1:1. However, they tend to break this ratio based on market demand. Nevertheless, Tether usually distorts the 1:1 reserve ratio.
What is Tether Gold (XAUT)?
Tether Gold (XAUT) is a gold-linked stable coin minted by Tether Limited. Its value is supported by London Good Delivery Gold Bars. Its value depends on the price of one troy ounce of gold per token.
Easy to access
Tether USD can be accessed from Binance Smart Chain, Tron, Algorand, EOS, Liquid Network, Omni, Bitcoin Cash Standard Ledger Protocol, Solana and Ethereum. Therefore, you can use Tether USD tokens on various platforms using various networks.
Pegged to the U.S. dollar
Since Tether USD is a stable currency pegged to the U.S. dollar, its value is pegged to the value of the U.S. dollar. Therefore, USDT is not affected by price fluctuations.
Although Tether Limited has been under scrutiny for failing to meet reserve requirements for some time, Tether Limited has provided an overview of its various currency assets.
Easy to access
Tether Gold can be obtained from Tron and the Ethereum network. Therefore, you can keep these tokens in a separate wallet for trading on the exchange.
Each XAUT indicates to investors that they own a troy of physical gold on a particular bullion. Because these tokens represent the ownership of gold, they can be redeemed if they are sold. More importantly, XAUT owners can check their gold status on every detail about precious metals. To exchange tokens, users need to go through the verification process of the gold storage company.
The Tether Limited case and the New York Attorney General
Tether and other stablecoin companies claim that they have all the reserves to repay all token holders. However, when Tether Limited found that they did not support their claim based on an independent audit, the New York Attorney General filed a lawsuit against Tether Limited. In the cases of Tether and Bitfinex, both companies discovered that they had concealed losses worth $850 million. After the case was resolved, it was discovered that the stablecoin reserves were insufficient to support all Tether supplies. Therefore, Tether and Bitfinex had to pay a fine of $18.5 million and stop all trading activities in New York. In addition, these companies must submit any reports to the New York Attorney General’s Office to comply with the ban.
So, is Tether legal or fraudulent?
Although Tether provides a lot of liquidity for the cryptocurrency market, when investors need to redeem their currency units in U.S. dollars, it does not have enough reserves to support it. If investors are suspicious of Tether and demand that Tether redeem all their money, then Tether may go bankrupt because it does not have enough reserves to support all investors’ claims. Therefore, Tether and Bitfinex may go bankrupt, and the cryptocurrency market will be in a terrible position because Tether provides most of the liquidity in the market. Although the collapse of Tether will cause liquidity problems, various stablecoins will fill the gap, but it will take a long time. Although Tether and Bitfinex are in a difficult situation, it is too early to call Tether a fraud.