Is Tether Backed Up By 1:1 Dollar Reserves?
Today we’re going explore ‘Tether and whether the stablecoin is backed up by 1:1 dollar Reserves.
Tether has grown significantly over the last two years. At the beginning of 2017, it was worth approximately $10 million. But by December 2017, this value has shot to $1.3 billion. Tether is currently the 7th most popular cryptocurrency token and is the third-largest cryptocurrency by trading volume, behind Bitcoin and Ethereum. On Coinmarketcap, Tether has a total market capitalization of $1.8 billion today. Despite its growth and popularity, Tether has experienced a lot of problems in the past.
Tether is supposed to be backed by the US dollar in a one-to-one ratio. For every Tether, there should be a dollar in their deposits. For such a popular token, it’s a big surprise that the company has never been properly audited. One of the latest Tether transparency updates, The FSS Report published on June 20, was short and vague. While the report indicates that the company behind the Tether token does have enough capital to back each token on a 1 to 1 basis, the report was not actually an audit but was rather a data report gathered during a two week period when the firm had access to Tether’s bank accounts. When questioned, the directors of Tether continuously claim that their tokens are completely backed by USD dollars however, there isn’t much clear evidence to support any of this.
Many in the cryptocurrency community have grown tired of Tether’s lack of transparency. Stuart Hoegner, Tether’s general counsel even admitted on a phone interview with Bloomberg in June that an audit cannot be obtained. Tether believes that they have “gone for what [they] think is the next best thing.”
With such responses, it’s no surprise that many in the cryptocurrency community believe that Tether is running a fractional reserve system. Some are also certain that Tether probably doesn’t have the dollars to back-up all their tokens.
While it’s uncertain whether Tether actually has the funds to back-up their tokens, Bloomberg has managed to review Tether’s bank statements that was provided by someone with access to the company’s records. Bloomberg assessed four separate bank statements that detailed the cash held in Tether’s accounts. Although these documents do not provide a clear comprehensive overview of Tether’s finances, they offer much more information than Tether has ever made public.
In one bank statement, Tether had $2.2 billion in Puerto Rico’s Noble Bank on January 31. On the same day, 2.195 billion Tethers existed. The number between Tether tokens and their USD reserve also match up in September and October 2017. It appears as though, with a quick glance, Tether tokens are actually fully backed by US dollar reserves. However, these only provide a snapshot of certain times within the year. It remains uncertain whether there is a consistent 1 to 1 backing of Tether tokens and US dollar reserves. It’s unclear if they are also properly backed today.
Furthermore, the bank statements do not show where the funds originated or where they are now. There are many unanswered questions when it comes to Tether’s relationship with their banking partners especially since they have lost a number of banks in their history. This includes a Group of Taiwanese lenders that dropped them after Wells Fargo & Co. cut its correspondent banking ties back in 2017.
It looks as though Tether isn’t going to take any action to boost their transparency anytime soon. Unfortunately, the cryptocurrency community is relying significantly on trust when they work with Tether tokens. Many stablecoin providers have therefore taken advantage of Tether’s lack of transparency to launch their own stablecoin in the market.
While most stablecoins such as the USDC and TrueUSD are collateralized and backed by the US Dollar to minimize the effects of volatility, there are many tokens that have come up with new and innovative ways to retain their value. An example is Ampleforth, a stablecoin that was renamed after the famous 1984 character. Instead of pegging to a fixed supply of US Dollars, it works on an elastic supply rather than an elastic valuation. The non-collateralized stablecoin has managed to raise approximately $4.75 million from Brian Armstrong, the CEO of Coinbase and Pantera Capital.
What are your thoughts on the situation guys?
Do you think Tether is a scam?
Do you think Tether will remain the most popular stablecoin?
Or will new players like Ampleforth, the USDC, Gemini Dollar overtake Tether and become the next leading stablecoin?
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Disclaimer: Cryptopig content is written by a team of blockchain passionate people. We are not registered as investment advisors. Don’t take the information in this post as investment advice and make sure you do your own research before investing. Cryptocurrencies are a very risky investment, never invest more money than you can afford to lose.