Bitcoin accounts for about 70% of the global market value of digital assets. However, in terms of daily and monthly trading volume (according to CoinMarketCap.com), it is not the first cryptocurrency that is leading at all, but Tether, whose market capitalization is more than 30 times less than bitcoin, Bloomberg reports.
Tether’s trading volume for the first time exceeded the similar indicator of bitcoin in April and since the beginning of August has constantly exceeded it by about $ 21 billion per day. The absolute record was set in May last year, when the USDT (Tether cryptocurrency token) recorded a record turnover of $ 31 billion per day.
Given that the monthly turnover of Tether is approximately 18% higher than that of bitcoin, this is perhaps the most important coin in the crypto ecosystem. Tether is also one of the main reasons why regulators are cautious about cryptocurrencies and have slowed down the decision to trade on cryptocurrency funds (ETFs) amid concerns about market manipulation.
Tether is a stablecoin token whose value is tied to a stable fiat instrument. The coin is a bridge for linking the value of volatile blockchain assets with the world of more stable fiat instruments. Among the negative aspects of using USDT, one can note the issuer’s refusal to audit and verify the availability of necessary reserves, as well as the lack of transparency in the issue of new tokens. The presence of a centralized issuer in the USDT protocol structure is a point of failure and creates significant risks for users.
According to Allaire, Asian traders account for about 70% of the total crypto trading volume, and Tether was used in 40% and 80% of all transactions on the two largest world exchanges, Binance and Huobi, respectively, Coin Metrics reported earlier this year.
Many don’t even suspect they are using Tether, said Thaddeus Draya, a research scientist at the Massachusetts Institute of Technology. Since traditional financial institutions worry that they are not good at detecting criminals and money launderers, most crypto exchangers still do not have bank accounts and cannot hold funds on behalf of clients. Therefore, they use Tether as a replacement, Draya said.
“I don’t think that people trust Tether: I think people use Tether without suspecting it, thinking that somewhere they have real money in their bank account”- says Drya. Some exchanges mislabeled their pages to create the impression that customers are holding their funds in dollars rather than in Tether, he said.
The way Tether manages and leads raises many questions. While Bitcoin does not belong to anyone, Tether is issued by a private company from Hong Kong, the owners of which also own the Bitfinex crypto exchange. The exact mechanism for increasing and decreasing Tether supply is unclear. Likewise, the question of how much stock is covered by fiat reserves is also questionable, since Tether does not conduct an independent audit.
In April, Tether Limited’s chief lawyer, Stuart Hogner, confirmed that the USDT stablecoin was backed by fiat reserves only by 74%, while earlier he said the reserve was 100%.
Recall, on February 27, Tether quietly made changes to the policy of securing the USDT token. From that moment on, each coin was backed up with “reserves that include traditional currency and cash equivalents, as well as, from time to time … other assets and upcoming loan proceeds that Tether provided to third parties.”
The disclosure was part of an investigation by the New York Attorney General’s Office, which charged Bitfinex that it had concealed a loss of $ 850 million and used Tether’s reserves to cover the damage. According to law enforcement, the operator of the iFinex Inc. Trading platform borrowed at least $ 700 million to fill the deficit, but users were not notified.
John Griffin, professor of finance at the University of Texas at Austin, believes that half of Bitcoin’s growth in 2017 was due to market manipulation with Tether. Last year, Bloomberg reported that the US Department of Justice is exploring the role of Tether in this market manipulation.
“Being controlled by centralized forces destroys the original purpose of the blockchain and decentralized cryptocurrencies,” Griffin said. “So, although the idea of stablecoin is good in theory, it’s risky, open to abuse and suffers from problems similar to traditional fiat currencies”.
Recently, there was information that Tether released a stablecoin linked to offshore renminbi (CNH): “Offshore renminbi has been added to the set of supported currencies, there is already a new stablecoin CNH ₮! It is linked to CNH and is available on the Ethereum blockchain as an ERC standard token -twenty”.
Earlier, Bitfinex investor Zhao Dong expressed the opinion that the launch of CNH ₮ should not provoke a conflict with the central bank of the Celestial Empire.
“CNHT will not become an obstacle to the control over capital flows carried out by the People’s Bank of China. CNH differs from CNY in that it is an offshore product. On the contrary, CNHT will help China expand the implementation of CNH in international settlements,” the investor said.