Tether (USDT) is arguably the most controversial cryptocurrency in the world. Yes, the most famous and also the oldest stablecoin in the crypto world, is indeed the one that caused huge controversies all over the world and has worried many crypto enthusiasts for years. Surprisingly, Tether survived all of its past controversies, and it remains the largest stablecoin with enormous daily trading volume, surpassing even Bitcoin itself.
So, what actually happened and why everybody is so obsessed with Tether? Let’s learn together with this article.
The Perfect Idea Of Stablecoin
The idea of cryptocurrencies has never really been appealing to people outside the crypto space itself. Many people “brushed off” the importance of cryptocurrencies simply because of how volatile the price can be. Yes, since years ago until today, cryptocurrency prices can easily go up or down within just a few days or even hours. This same situation doesn’t happen to fiat currencies. Yes, prices of fiat currencies can also go up or down, but they are much more stable compared to crypto.
Then, there’s stablecoin with 1-to-1 valuation to fiat. The idea of stablecoin is to eliminate this exact problem with price volatility. It’s like the best of both worlds. It utilizes blockchain technology, but it also eliminates price volatility issue that has become a “permanent” issue for standard cryptocurrencies.
When Tether came up with this idea, everybody warmly welcomed it. Everybody knew the crypto trading space was in desperate need of stablecoin presence. The precursor of Tether was actually called Realcoin in July 2014. The first Realcoin token itself was launched on October 6th, 2014, on top of Bitcoin blockchain. On November 20th of the same year, the project was rebranded to Tether.
There were three different tokens, USTether (US+), EuroTether (EU+), and YenTether (JP+). The company claimed that every Tether+ token was 100% backed by its original currency, and could be redeemed at any time. That means, they claimed that for each US+ token that they issued on the blockchain, they had 1 USD in their bank account. And you could redeem each US+ token to real USD in your bank account.
Along with time, only one token out of these three projects became quite popular, which is US+. The name itself was changed to USDT, which is short for USD-Tether. Most crypto traders utilize USDT to hedge against crypto price volatility. For example, traders can trade BTC/USDT and hold their funds and profits in USDT before they trade again the next day. This is the main utility of USDT.
Where The Controversies Began
Everything looked good until the Tether team started to become controversial. For quite some time, Tether company was processing all USD transactions through their Taiwanese banks, which were usually redirected to their Wells Fargo bank account. However, from April 18, 2017, these transactions were suddenly blocked. Tether then tried to sue Wells Fargo in the District Court for Northern California before they withdrew the same lawsuit only a week later.
This controversy has forced Tether to “freeze” deposits and withdrawals through their bank accounts. Previously, customers could just send USD to their bank accounts, and in exchange, they would get USDT tokens in their crypto wallet. And when the same customers wanted to withdraw USDT to real USD, they could request a withdrawal and send their USDTs to Tether crypto wallets. In return, these customers would get real USD in their bank accounts. However, as I mentioned earlier, these processes were stopped due to Tether banking problems.
Bitcoin Price And Tether Supply
Strangely, the supply of USDTs kept growing from just $10 million to $2.8 billion within less than two years (from Jan 2017 to Sep 2018). Many people started to feel suspicious about it, especially after Tether itself stopped regular customers to make bank deposits freely. Many researches believed that Tether “printed” a massive amount of new USDTs simply to pump Bitcoin price. As we all know, Bitcoin price grew significantly in 2017.
Tether was pressured by everybody to show their audit results on their USD reserve in their bank accounts. However, Tether always tried to make excuses after excuses and never actually shown any verifiable audit results. Many vocal figures such as the Twitter account Bitfinex’ed claimed that Tether intentionally printed a new supply of USDTs to enrich themselves as well as to pump Bitcoin price on crypto exchanges.
Crypto Capital And $850 Million
The controversy did not stop there. In April 2019, Letitia James, who acted as New York Attorney General, filed a lawsuit on Bitfinex. She believed Bitfinex misused Tether’s USD reserves to conceal Bitfinex’s $850 million loss. What happened was, due to the difficulty of finding a regular banking partner, Bitfinex was reported that they made a $1 billion deposit to a Panama-based payment processor called Crypto Capital Corp.
And then, Crypto Capital itself began to have some problems with customers’ withdrawals. They claimed that customers were not able to withdraw their funds from Crypto Capital because the money was seized by UK, Poland, Portugal, and United States regulators. In total, there were $850 million of Bitfinex funds that got tied up in Crypto Capital.
Because of this problem, Tether replaced Bitfinex’s lost funds with their USD reserves in their bank accounts. You might be wondering, why did Tether agree to replace Bitfinex’s loss funds in Crypto Capital? Well, it’s because the two entities have the same owners. Even though Bitfinex never admitted that they share ownerships with Tether, but leaked documents in Paradise Papers have shown that they are indeed owned by the same people.
Because of this messed up situation, Bitfinex launched its own token that they called as UNUS SED LEO. The initial token sale of LEO successfully raised $1 billion. It helped Bitfinex/Tether to recover their lost funds in Crypto Capital.
Many rumors suggested that Crypto Capital itself is probably owned by Bitfinex/Tether owners. At this point, it won’t surprise anyone if that rumor is actually correct.
The Unlikely Ending
In other industries, all these controversies would have ended a company’s future due to a series of bad publications. In the crypto world, however, Tether keeps going stronger than ever. According to CoinMarketCap, Tether remains the most popular cryptocurrency in the world, with even higher daily trading volume than Bitcoin itself.
There are other stablecoins on the crypto market with real audit reports and no banking problems such as TUSD, PAX, USDC, and others, but USDT remains the most popular stablecoin until today (and perhaps for a much longer time).
Only time will tell if USDT will eventually fall, or it will remain the king of stablecoin for years to come.