Stable coins… Having named as stable, doesn’t mean the value will remain unaltered or unaffected every time! Being pegged to fiat currencies, the chances of remaining less volatile other than the cryptocurrencies on a whole is quite higher. May be that’s why stable coin has always been preferred.
Without any doubt, Tether(USDT) is the first ever created stable coin.
Pegged to 1$, it has always assured its large array of consistent users a kind of stability which comes with being backed with the fiat currency (USD, EURO & YEN). This was the main idea behind the creation of stable coins (specifically Tether) in the first place. The recent controversies surfacing around Tether stable coin has brought the former in a limelight (and, in a down-trading too).Since the handshake of Tether with the Hong Kong based cryptocurrency exchange; Bitfinex in the year 2015, the story has been the same. There have been certain factors mainly hacking, unresolved relations with the concerned banks, timely lowering of trading rates, questionable status with Bitfinex and as such. How, when & why the factors came in existence, let’s find out!
In April 2017, Tether and Bitfinex together have sued Wells Fargo & Co. Literally for not processing the stable coin’s US$ payments (withdrawals) asking for over $75,000 in damages. Justifying the decision to initiate legal proceedings they said
“The decision to initiate legal action is because we cannot allow precedents in this industry where clearing houses can disrupt businesses that are by all metrics complying with the rules in place. If we allow them to simply flip a switch and disrupt business, then there becomes a precedent in the bitcoin industry beyond just Bitfinex, so we believe it is the appropriate time to take action.”
Shortly after they sued wells Fargo & Co , questions on Tether financial status were raised for the first time in April 2017 when the price of Tether had fallen to $0.91 with a market cap of $54 million and Total market cap of all currencies standing at $29 billion , doubts were raised on its ability to provide stable assets project.A sentence mentioned on the Tether’s legal page also aroused suspicion regarding its ability to serve dollar peg at a ratio of 1:1.
“There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”
This further compounded the problems faced by Tether and as a result price came crashing down, creating a panic sell and artificial hike in currency rate for buyers of USDT pairs.
In May 2017 , Tether was trading at $1.04, with a market cap of $70 million and Total crypto currency market cap at $100 billion. Surprisingly enough, in spite of being in controversy, Tether had managed to raise its market cap by more than 100% and 24hr volume by whooping 1000%.
In November 2017, a hacker maliciously stolen 31m$ tokens from its Tether wallet. Tether responded quickly by asking exchanges to not to encash the stolen tokens and also asked Omni core to upgrade the wallet enabling them to recover stolen tokens. Hereby, making users doubt the stable coin’s transparency and credibility.
Tether remained in controversy throughout 2018 regarding their ability to fulfill the dollar peg, to quell this Tether came out with a report in June 2018, stating that it had full dollar reserves to match the circulating supply but shortly afterwards, Tether was cornered with doubts on the report itself.
In October 2018, Bitfinex and Tether came out with a statement to quell rumours of bankruptcy stating that it had stopped deposits and withdrawals of Fiat as the Puerto Rico’s Noble Bank International was looking for buyers and that they were shifting their banking services elsewhere . Shortly after this, a rumour generated out of a fake tweet by Binance; a large cryptocurrency exchange stating, ‘Binance is deciding to delist Tether due to the controversies linked to it’ resulted in price drop of Tether to its all-time low and markets spiralling upwards which created FOMO moments in the minds of investors which spiked the volumes of currencies. The only difference compared to the 2017 incident here, was that the advantage of this was also taken by other newly created stable coins like GUSD, TUSD, Paxo , USDC etc getting record volumes resulting in increased market cap.
Tether’s controversy and the rumours surrounding it, has turned out to be a game-changer for the stable coins. Institutions and exchanges coming out in droves to either create a stable coin of their own or open up their platform for other stable coins to trade. Tether continues to lose its market dominance and also its circulating supply which is down by a billion dollars. Tether has tried its best to quash the controversies surrounding it by announcing new banking partners,Nassau based Deltec bank and also providing a statement from them stating ‘Tether had 1.8b$ circulating supply equivalent to the 1.77 billion pegged USDT in the bank’.
After first denying the financial relations with Tether, the Chairman of the Deltec Bank confirmed to having financial relations with tether on November 5, 2018 . Deltec Bank is currently under investigation for money-laundering charges therefore raising doubts again on Tether’s ability to service its dollar peg.
All of a sudden, interest taken by institutions and exchanges in stable coins raises a doubt as to why, in-spite of Tether assuring everyone repeatedly of its dollar peg, the suspicion surrounding it, refuses to clear. Is it a deliberate attempt by Tether to manipulate the market or is it a conspiracy by others to dethrone Tether from market dominance in stable coins?
What do you think of Tether controversy? let us know in the comments section below.
Author: Sahil Ojha