Created by Bitfinex, TETHER is a coin touted as stable because it is supposed to be backed by the USD. This means that for every USDT in issued, there is supposed to be an equivalent amount of USD being held in a bank account. The idea behind this is that it will allow traders a way to remove themselves from the volatility of the cryptocurrency markets, without actually cashing out, and incurring capital gains. It is also supposed to be more enticing to use as a currency, due to its low volatility. It is much easier to spend USDT when 1 will always buy you 1 coffee. With BTC, 1 coin may buy you a coffee one day, and a house the next.
USDT is not the only stable-coin on the market. There have been many offerings in the past where they would be pegged to something other than USD. These would range from Tibetan tea, precious metals, consumer indexes, etc. Without a doubt USDT has been the most successful, and currently underpins the entire cryptocurrency market. This may not be the case for long though, as industry giants such as Circle and BitMain are creating their own stable-coin.
While USDT had/has the opportunity to show that stable-coins can help the market and function efficiently, they have yet to capitalize on the opportunity. USDT has long been mired in allegations of market manipulation. Just recently a professor from the University of Texas released a paper detailing why he thought this was the case. The main point made was that when the price of BTC is declining, BitFinex and its associates will create USDT to buy BTC and artificially prop of the price. Whether this is true or not is debatable. Many believe this to be the case.
A main reason that people are so skeptical of USDT is because TETHER has not released an audit of their financials. The company was set to do so in 2017, but the working relationship between themselves and the auditing firm tasked to do so dissolved. To further confuse those following USDT’s state of authenticity, they have since hired a well-respected law firm to do a ‘transparency update’. This is not a full audit, but rather a look at the state of the company’s financials at a single point in time. In this case USDT hired a law firm, helmed by the former Director of the FBI. The firm announced that they chose a random date to evaluate, and as of June 1st of 2018, TETHER indeed did have a 1:1 ratio of USD and USDT in their accounts.
We have seen respected institutions argue that TETHER manipulates the market. We have seen respected institutions show that their financials are sound. Who do we believe at this point? Whatever the case may be, TETHER seems unfazed by the situation. With the release of 250 million tokens yesterday onto the market coinciding with BTC’s yearly low, their actions are doing nothing to abate doubters.