BACKGROUND
Tether launched in 2014, and quickly became the world's largest stablecoin, with a current market value of almost $70 billion.
In order to assure buyers that Tether is Legitimate, Tether claimed it had cash reserves equal in value to the stablecoins it issued. That means that 1 Tether Has 1 U.S Dollar backing it. The US government found that wasn’t at all true. During a period from 2016 to 2018, the CFTC found that Tether held 27.6% of the value of issued stablecoins in fiat currency reserves. The Commission filed and settled charges with Tether that the company made “untrue or misleading statements and omissions of material fact.”
The company insisted it always had enough money in reserve, saying in response to the CFTC fine that “There is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times.” Tether has also invested some of its reserves in Chinese commercial paper. A document detailing the reserves of Tether Holdings Ltd reveals that Tether has given billions of dollars in short-term loans to large Chinese companies.
Tether has also been offering billions of dollars in crypto-backed loans. Some of these loans have Bitcoin as collateral. However, Tether’s lawyers claim that these secured loans are low risk since the borrowers have put up bitcoin that’s way more worth than their borrowings. Just recently, Alex Mashinsky, CEO of Celsius Network, was the latest person to claim that Tether’s stablecoin tokens aren’t fully backed by dollar reserves. “ If you give them enough collateral, liquid collateral, bitcoin, ethereum and so on . . . they will mint tether against it,” Mashinsky told the Financial Times. He explained that new USDT is issued directly for the loan, and then destroyed after so it doesn’t permanently increase the amount of Tether in circulation. Should this occur as Mashinsky describes, it would be in contradiction of Tether’s own terms of service: “Tether will not issue Tether Tokens for consideration consisting of the Digital Tokens (for example, bitcoin); only money will be accepted upon issuance.” Short-seller Hindenburg just set a $1,000,000 ‘bounty’ for details on Tether’s reserves.
SO WHY DOES THIS MATTER?
In May, Tether published details of its reserves in a pie chart. The breakdown showed it had 75.9% in "cash and cash equivalents." However, looking at that in more detail, only a small proportion of the 75.9% is held in cash:
* 65.4% is in commercial paper. That equates to almost half of Tether's total reserves.
* 3.9% is in cash. That equates to 2.9% of its total reserves.
Commercial paper is a type of short-term loan that's usually made to corporations. The trouble is that Tether hasn't released information about what types of loans it has made. We don't know who the borrowers are or what types of debt it is. Most importantly, we don't know how easy it would be for Tether to access that money. Bitcoin as well as Altcoins are often paired in USDT. Meaning it isn’t real U.S dollars that are being used to purchase cryptos but instead Tether Dollars. Sure you may have used your hard earned dollars to attain Tether dollars but that money goes to Tether, you in return receive tether dollars that are then used to buy crypto.
USDT volume often ranges from 50% to 80%, which is higher than any other crypto on the market. Exchange data clearly shows USDT is mainly fueling Bitcoin’s price valuation, which is deeply concerning. Bitcoin mainly rises during times when Tether is seen injecting hundreds of millions into Bitcoin. And during the periods they stopped, we saw major market corrections. When Tether released their questionable pie chart showing the breakdown of their reserves, Bitcoin dropped by another 53% and lost over $520 billion in market cap. Which was also during a period in which tether stopped printing.
SO WHY DOES THIS REALLY MATTER?
It’s evident that Tether is the glue holding up the crypto markets. With its potential insolvency, we could see a crypto-liquidity crisis which will create extreme levels of panic and fear amongst investors. Since Tether only has 2.9% of its supply backed by actual cash that means that if enough investors decided to convert from Tether back into U.S dollars simultaneously, Tether simply wouldn’t have enough cash to go around. Meaning the value of Tether could actually go far below 1 USD.
Nobody can be sure of what will happen in the future but this is just something to be aware of. I love crypto and believe in the technology. I am just not sold on the legitimacy of the current evaluations of top projects. Should Tether go down it would not mean the end of crypto. It would just be a catastrophic event and would go down as the largest case of fraud in history.
Thank you for reading. I will attach all sources below.
www.coindesk.com/mar...tic-not-cataclysmic/
www.fool.com/the-asc...utious-about-tether/
cryptowhale.medium.c...osystem-23a169003205
www.ft.com/content/5...86-b68c-b6facaba83a4
blockworks.co/celsiu...ked-lending-program/
qz.com/2076079/us-fi...ying-about-reserves/
www.coinspeaker.com/...chinese-investments/
Tether launched in 2014, and quickly became the world's largest stablecoin, with a current market value of almost $70 billion.
In order to assure buyers that Tether is Legitimate, Tether claimed it had cash reserves equal in value to the stablecoins it issued. That means that 1 Tether Has 1 U.S Dollar backing it. The US government found that wasn’t at all true. During a period from 2016 to 2018, the CFTC found that Tether held 27.6% of the value of issued stablecoins in fiat currency reserves. The Commission filed and settled charges with Tether that the company made “untrue or misleading statements and omissions of material fact.”
The company insisted it always had enough money in reserve, saying in response to the CFTC fine that “There is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times.” Tether has also invested some of its reserves in Chinese commercial paper. A document detailing the reserves of Tether Holdings Ltd reveals that Tether has given billions of dollars in short-term loans to large Chinese companies.
Tether has also been offering billions of dollars in crypto-backed loans. Some of these loans have Bitcoin as collateral. However, Tether’s lawyers claim that these secured loans are low risk since the borrowers have put up bitcoin that’s way more worth than their borrowings. Just recently, Alex Mashinsky, CEO of Celsius Network, was the latest person to claim that Tether’s stablecoin tokens aren’t fully backed by dollar reserves. “ If you give them enough collateral, liquid collateral, bitcoin, ethereum and so on . . . they will mint tether against it,” Mashinsky told the Financial Times. He explained that new USDT is issued directly for the loan, and then destroyed after so it doesn’t permanently increase the amount of Tether in circulation. Should this occur as Mashinsky describes, it would be in contradiction of Tether’s own terms of service: “Tether will not issue Tether Tokens for consideration consisting of the Digital Tokens (for example, bitcoin); only money will be accepted upon issuance.” Short-seller Hindenburg just set a $1,000,000 ‘bounty’ for details on Tether’s reserves.
SO WHY DOES THIS MATTER?
In May, Tether published details of its reserves in a pie chart. The breakdown showed it had 75.9% in "cash and cash equivalents." However, looking at that in more detail, only a small proportion of the 75.9% is held in cash:
* 65.4% is in commercial paper. That equates to almost half of Tether's total reserves.
* 3.9% is in cash. That equates to 2.9% of its total reserves.
Commercial paper is a type of short-term loan that's usually made to corporations. The trouble is that Tether hasn't released information about what types of loans it has made. We don't know who the borrowers are or what types of debt it is. Most importantly, we don't know how easy it would be for Tether to access that money. Bitcoin as well as Altcoins are often paired in USDT. Meaning it isn’t real U.S dollars that are being used to purchase cryptos but instead Tether Dollars. Sure you may have used your hard earned dollars to attain Tether dollars but that money goes to Tether, you in return receive tether dollars that are then used to buy crypto.
USDT volume often ranges from 50% to 80%, which is higher than any other crypto on the market. Exchange data clearly shows USDT is mainly fueling Bitcoin’s price valuation, which is deeply concerning. Bitcoin mainly rises during times when Tether is seen injecting hundreds of millions into Bitcoin. And during the periods they stopped, we saw major market corrections. When Tether released their questionable pie chart showing the breakdown of their reserves, Bitcoin dropped by another 53% and lost over $520 billion in market cap. Which was also during a period in which tether stopped printing.
SO WHY DOES THIS REALLY MATTER?
It’s evident that Tether is the glue holding up the crypto markets. With its potential insolvency, we could see a crypto-liquidity crisis which will create extreme levels of panic and fear amongst investors. Since Tether only has 2.9% of its supply backed by actual cash that means that if enough investors decided to convert from Tether back into U.S dollars simultaneously, Tether simply wouldn’t have enough cash to go around. Meaning the value of Tether could actually go far below 1 USD.
Nobody can be sure of what will happen in the future but this is just something to be aware of. I love crypto and believe in the technology. I am just not sold on the legitimacy of the current evaluations of top projects. Should Tether go down it would not mean the end of crypto. It would just be a catastrophic event and would go down as the largest case of fraud in history.
Thank you for reading. I will attach all sources below.
www.coindesk.com/mar...tic-not-cataclysmic/
www.fool.com/the-asc...utious-about-tether/
cryptowhale.medium.c...osystem-23a169003205
www.ft.com/content/5...86-b68c-b6facaba83a4
blockworks.co/celsiu...ked-lending-program/
qz.com/2076079/us-fi...ying-about-reserves/
www.coinspeaker.com/...chinese-investments/