The world’s largest stablecoin (USDT) ranks third in the cryptocurrency pantheon with a market capitalization of over $65.5 billion. But while its status shines brightly, Tether’s reputation lurks in murky waters.
For years, Tether Limited, the company behind the world’s most widely used stablecoin, has failed to prove that it has enough reserves to fully back each coin.
Lack of financial audits, shady partners and compromised holders. These multiple signs are warning that the stablecoin giant is standing on its feet of clay. If it falls, the shipwreck could devastate the entire crypto world.
So is Tether a ticking bomb? Let’s take a closer look at the giant.
Birth of a Giant: The Bonds of Bitfinex
Tether as we know it officially came out in late 2014 when its original founder sold ownership to Phil Potter and former plastic surgeon Giancarlo Devasini. He was the CEO of Finex.
Until then, the tether real coin Founded on July 8, 2014, it is one of the first stablecoins in the world.
It was pegged 1:1 to the USD to stabilize the price. All new USDT was created only when the company received the equivalent of $1 as collateral. The company’s dollar reserves are said to be held in various bank accounts.
However, in 2014, exchanges between crypto entities and financial institutions such as banks were very tight. All traditional banks were willing to deal with crypto assets. Banks refused to open accounts with cryptocurrency companies, citing illegal transactions and money laundering risks.
The inability to act under these circumstances was a crucial reason why Realcoin founder Brock Pierce, programmer Craig Sellars and hired CEO Reeve Collins sold the company to senior Bitfinex executives.
Registered in the British Virgin Islands and based in Hong Kong, Bitfinex appeared to be one of the first professional platforms for crypto traders back in 2014.
The Rise
A few months after acquiring Tether, the Bitfinex exchange introduced fiat-to-crypto operations, opening the door for a myriad of new players to enter the cryptocurrency market.
This served as a trampoline for Tether. As the number of traders increased, the usage of USDT increased. Stablecoins provided the ability to enter and exit crypto trading without having to sell crypto for fiat each time. The number of exchanges supporting Tether has grown accordingly.
Stablecoin transfers do not require an intermediary. They offer fast and cheap cross-border transactions and have established a reputation as a “physical dollar alternative”.
Since early 2016, Tether’s market cap has run amok, up 945% by the end of the year.
2017 saw the biggest growth ever. USDT’s value has broken all records as its annual growth surpassed his 14,874%. The market value of USDT has reached nearly $1.5 billion in the last few days of a historic year for the entire cryptocurrency market.
Source: CoinMarketCap.com
But for Tether, the year was not only about unprecedented growth, but also serious accusations of market manipulation.
Crack: price manipulation
In 2017, John Griffin, a finance professor with years of experience in financial fraud investigations, and his student Amin Shams, during the famous cryptocurrency market rally of 2017, discovered that Tether was Bitcoin’s. We discovered that it was used to artificially inflate prices.
In Their Study “Is Bitcoin Really Not Tethered?” A Single Large Company Used Massive USDT To Replenish Demand At The Precise Time When Bitcoin’s Price Drop Appeared To Be Imminent made it clear. In addition, a strong inflow of USDT occurred during the “post-tether period”.
At the end of 2017, Tether rapidly launched the USDT stablecoin, issuing 50 million in a week. This process only got stronger after the hack. On November 19, 2017, he had his USDT of $30.95 million stolen from the company’s Treasury purse.
Finally, all the massive USDT inflows into Bitcoin happened exclusively on the Bitfinex platform. Researchers have not observed anything similar on other cryptocurrency exchanges during the Bitcoin boom.
stablecoin leader
In the years that followed, the wild growth of 2017 was not repeated. However, Tether’s market value continued to grow steadily, and so did the number of users.
Since the beginning of 2019, tens of billions of US dollars have replenished the company’s reserves, reaching a high of $83.16 billion in May 2022.
(LUNA) crash changed the trend and USDT’s market value dropped 20% in two months. Half a year later, Sam Bankman-Fried’s FTX plummeted, causing another wave of decline. Tether’s market value plunged to $65.32 billion, the lowest level since the uptrend reversed.
Source: CoinMarketCap.com
Closest competitor (USDC) surpassed Tether for maximum total blockchain supply in 2022, but Tether continued to win in value transfer. The dominant stablecoin accounts for over 65% of his total daily trading volume in the cryptocurrency market.
By the end of 2022, Tether remains the largest stablecoin in the cryptocurrency market with over 25.6 million total addresses. Rival USD Coin (USDC) has registered 1 in 2.75 (or 9.3 million) user wallets.
But despite its impressive stature, red flags and concerns continue to mount around Tether.The question of whether the stablecoin giant will keep its balance is more important than ever.
Unable to prove its reserves
Since Bitfinex acquired Tether Ltd., the company has repeatedly promised, but has struggled to provide a thorough audit of whether there is sufficient capital to back each stablecoin. rice field.
According to the U.S. Commodity Futures Trading Commission (CFTC), Tether “had sufficient fiat reserves to back USDT tokens in circulation for only 27.6% of the 26-month sample period from 2016 to 2018. I had it in my account.”
At the same time, Tether issued millions of new USDT tokens, summoned by the CFTC.
Source: Investopedia.com
Financial regulators and law enforcement agencies have launched investigations into Tether. They revealed that USDT is not backed 1:1 against the US dollar as stated, but is backed by a mix of riskier assets such as corporate debt.
Additionally, according to court documents, Bitfinex lost $850 million in customer and corporate funds and acquired a similar amount from Tether’s reserves to fill the gap. Tether never notified investors about this loan of his to Bitfinex.
In 2019, various companies invested $1 billion in Bitfinex, and Bitfinex used the funds to repay loans to its sister company, Tether.
Tether and Bitfinex have admitted wrongdoing and agreed to pay $18.5 million in fines in 2021. Both companies were required by the New York Attorney General’s Office to issue quarterly reports that ensured the accuracy of their financial information.
A year later, a New York court prepared Tether to provide full documentation of all crypto and cash transactions, balance sheets, income, and income statements to fully back all USDT stablecoins. I ordered to verify the money and ability.
As of September 2022, Tether reports consolidated total assets of just over $68 billion and liabilities of approximately $67.8 billion. The majority (85.45%) were cash and equivalents, short-term deposits and commercial paper. 9.02% secured loans; 4.69% corporate funds, bonds and precious metals. 3.85% for other investments, including cryptocurrencies.
Source: Tether.to
Partner Banks of Tax Haven
Despite the uncertainty about Tether’s capital reserves, another elephant in the room was the question of where those reserves are.
Since its inception, Tether Limited has struggled to deposit its holdings in registered traditional banks. No financial institution wanted to deal with cryptocurrency related business. Illegal Finance, Money Laundering: Over five years ago, cryptocurrencies had a very questionable reputation. Probably little has changed since then.
Only offshore companies located in tax havens dared to cooperate. In the case of Tether, Puerto Rico’s Noble Bank International and Bahamas’ Deltek Bank and Trust have agreed to withhold the company’s reserves and issue financial statements. However, the statement was never backed up by a thorough financial audit.
Celsius network reserves
As stated in Tether’s financial reports over the past few years, the company’s reserves are dominated by cash, short-term deposits and commercial paper. These are described as unsecured short-term debt instruments issued by companies.
Some of these commercial paper reserves, or billions of dollars, are invested in short-term loans to Chinese real estate companies and Bitcoin-backed loans to crypto lending firms such as Celsius Network (CEL). I was. This could total $1 billion lent by Tether to the now-bankrupt Celsius Network, according to Bloomberg’s 2021 report.
Tether has since denied rumors that 85% of its commercial paper portfolio is backed by Chinese commercial paper. The firm said it had liquidated its position in Celsius “without causing a loss to Tether.”
Alameda Research: Largest Donor
Over 66% of all USDT issued over multiple years is in the hands of two major companies.they are Alameda Research When Cumberland Globalrevealed by crypto outlet Protos.
Both entities acted as primary liquidity providers to the cryptocurrency market until the infamous FTX crash in November 2022. According to the data Alameda Research When Cumberland Global By the end of 2021, we own about $60 billion worth of decentralized USDT.
Source: Protos.com
The survey suggests that Cumberland Global, a subsidiary of American trading company DRW, is a major buyer of USDT. DRW is one of the largest traders in the financial markets. It is also one of the broadest liquidity providers on the world’s largest futures exchange.
According to Protos, Cumberland Global is one of Binance’s leading liquidity providers. I have been involved in cryptocurrency exchanges since 2019. By the end of 2021, Cumberland Global reportedly held $23.7 billion in USDT.
Meanwhile, Alameda Research, Sam Bankman-Fried’s bankrupt FTX parent company, holds about $36.7 billion in USDT. One of the reasons for the significant increase in issuance of new His USDT stablecoins after the launch of His FTX in May 2019 could be the appetite for Tether.
Conclusion
The largest stablecoin, Tether (USDT), accounts for one of the largest daily transaction volumes in the cryptocurrency market. It’s almost everywhere. Every cryptocurrency user has dealt with or at least heard of USDT.
The giant is so big that if it loses liquidity, its collapse could seriously damage the entire crypto world and cause panic in other financial markets.
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