Tether, the ‘cryptocurrency dollar’, was designed to mimic the USD value in an idea to create a digital dollar with a stable value.
Using the whitepaper’s language: “Tether: Fiat currencies on the Bitcoin blockchain”. It’s based on the Bitcoin blockchain and said to be reserved on one-to-one ratio independently of market forces. In reality, there are some changes.
The general idea behind the creation of the Tether cryptocurrency was to introduce a stable currency with respect to the US dollar. The goal was to introduce the stability of the dollar with the innovative features of the cryptocurrency. The term ‘stable coin’ was initiated in the forms o cryptocurrency.
Originally launched as real coin in 2015, it holds a market cap of almost $2 billion. Tether Limited is the team behind this cryptocurrency operating from the British Virgin Islands despite the act that the company address is listed as Hong Kong on the website. The protocol seems similar to the structure of Bitfinex.
This cryptocurrency is not a specific currency that one owns in their wallet. Instead, it is the deposited value of a client’s cryptocurrency in an exchange service, probably the major ones. If a client holds some money in a cryptocurrency exchange service, then it will be stored as USDT or it rather than the currency itself.
Advantages and Disadvantages
One of the main hurdles for any cryptocurrency exchange service is to incorporate with the traditional banking system. This cryptocurrency comes in handy in those scenarios due to its low volatile nature.
Tether allows the cryptocurrency exchange services to value the assets in USD without the correlation of a traditional bank account. As a result, it offers a lucrative option for many cryptocurrency based platforms. It costs less than the usual altcoins in terms of person to person transaction and storage.
The usual worry with Tether is that it can be treated as the reserve for the cryptocurrency, much like the USD and gold.
If a client holds one coin, they can sell it for $1 to tether limited. The talk among the community is that Tether limited may not have the adequate reserve to back up all the circulated tether.
The lack of transparency of the company has given the users plenty to think about. Some experts claim that it is not functioning in the proper way and responding with market conditions. One analysis revealed that the printing of tether coincides with a price drop of bitcoin, suggesting that those tethers are being used to buy cheap coins.
Another worrying fact is that all of these newly printed tethers are generated without proper documentation.
Tether in the Crypto-Exchanges
Tether acts as the central player for many cryptocurrency exchange services. So, any discrepancy among the tether network could mean a much bigger effect on the overall cryptocurrency market.
The market volume is increasing day by day and if it continues to do so than the price should not be attached with USD. Any price crash in the tether market could result in the price of all some of the other major cryptocurrency, including Bitcoin.
The solution to the problem won’t be easy to find because if the tether is detached from the USD than it will face liquidity issue since it is used as a proxy in the exchange services. However, the company has denied all the accusations and stated its firm stand on the topic of adequate dollar reserve. Only time will tell, what awaits for tether in the near future.