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Tether (USDT) is a cryptocurrency that is supposedly backed by the US dollar at a 1:1 ratio. This means that every digital Tether coin is worth $1 and has the actual fiat coin. Tether was created as a way to bridge the gap between fiat currency and cryptocurrency. For many people, it is a way to hold value in a stablecoin on crypto exchanges that don’t allow fiat currencies. For example, if you hold Bitcoin, and Bitcoin has started to behave weirdly, you can convert your Bitcoin to Tether, which essentially functions as the US dollar, and hold it there until you decide to convert to something else if you choose to.
The company who operates USDT, also called Tether, has always maintained that 1 USDT was backed by 1 USD in reserves despite many suspicions and even investigations. However, it appears as though the narrative has been stealthily altered to:
“Every Tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USD₮ is always valued by Tether at 1 USD.”
There has been speculation that Tether was not backed 1:1 by the US dollar for some time, which Tether has not confirmed.
When asked for more details, Tether stated:
“These changes were made several weeks ago and were directly communicated to Tether’s customers logging into the site. This was done by way of scrollwrap with new terms of service that required active consent.”
“Tethers remain completely stable and 100% backed, so Tether’s reserves always equal or exceed the number of issued Tethers. The only change is that the composition of the assets that provide that backing includes a combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether.”
These statements don’t seem to offer much more than the original so it isn’t clear what assets Tether are talking about or what proportion of Tethers are backed by the dollar.
On 20 November 2018, the US Justice Department has launched a probe into Tether and Bitfinex. Bitfinex is a large cryptocurrency exchange that has a somewhat suspicious relationship with Tether. Both companies share a CEO, Jan Ludovicus Van Der Velde, they share a CFO and at some point in the past also shared a Chief Strategy Officer. Tether is also traded on the Bitfinex platform. There have been repeated accusations that Bitfinex has used Tether to manipulate the price of Bitcoin. Some people think that the accusations may have some weight if the Justice Separtment has chosen to investigate.
This new narrative by Tether may also have something to do with the probe since they are probably under pressure to be more transparent about their practices, something the community has been requesting for some time.