Description: Tether (USDT) is not a typical cryptocurrency like Bitcoin,
but a stablecoin pegged to USD. Reports say that the US Treasury Secretary held
a meeting in July 2021 to discuss Tether. There are allegations that
Tether may not be maintaining the 1:1 reserve ratio that it claims.
Risk is inherent in crypto trading. But most crypto enthusiasts believe this risk relates
to volatility alone. The price of any crypto asset can swing in double digits overnight,
and even the biggest cryptos like BTC and Ether aren’t immune to this hyper-volatility.
But do you know: more than the volatility and excessive speculation reports around Tether’s
USD reserves have become a cause of worry. These reports suggest that Tether, the fourth
largest crypto asset by market cap according to CoinMarketCap, might not be holding the
1:1 reserve ratio that it claims. To understand this, let’s first understand what Tether is.
So, let’s first understand what is Tether a stablecoin?
Tether is not a typical digital currency like Bitcoin. The latter is a crypto
asset whose value is determined by market forces. An uptick in demand translates
into a surge in the price of BTC. As of today, one BTC trades at nearly US$57,300.
Tether, known by its ticker USDT, sees no such price movement. It is a stablecoin, which its
developers say is pegged to the US dollar. At any given time, one USDT equals one US dollar.
Additionally, the developers claim that the circulating supply is backed by
keeping reserves in the form of cash, treasury bills and commercial paper.
Now you must be wondering what are the allegations against Tether?
According to reports, Tether might not be maintaining adequate reserves of cash,
treasury bills and commercial paper. It may be just an empty promise made to investors.
The allegations may hold value.
First, since the crypto market is unregulated, there is no independent audit of financial claims.
No statutory body like the Fed or the SEC has any oversight. This, ironically, is claimed to be an
improvement over the traditional financial system, which has high transaction costs for end-users.
The noise around Tether’s dubious character appears to have stemmed from news reports
that suggested the United States Department of Justice is investigating a likely fraud by Tether
executives. In July 2021, Treasury Secretary Janet Yellen reportedly discussed the
impact of stablecoins with the members of the President’s Working Group on Financial Markets.
So, what if Tether is a scam?
If Tether’s 1:1 reserve claims are true, the company must have nearly US$68.7 billion
in its reserve. It means that if all USDT holders were to withdraw their holding,
Tether must have real money to pay them back.
Tether, if it holds such high reserves, would be one of the top 50 banks in the US.
But if the allegations against Tether are true, the entire crypto and altcoins market
may be impacted. It is because USDT has acted as a bridge between investors and crypto-assets.
A USDT holder can easily use it to buy crypto of choice
at an exchange. Usually, banks act as the bridge in such trades.
Thus, conclusively, as of today, there has been little impact of
reports around Tether’s lack of reserves on the crypto market. It might, however,
have an impact on the prices of crypto assets in the event of any truth in the allegations.