Breaking News
0

Concerns About Alt-Currency Tether Rise; Recent Glitch Adds To Worries

By Investing.com (Tanzeel Akhtar/Investing.com)CryptocurrencySep 25, 2018 05:20AM ET
www.investing.com/analysis/concerns-about-altcurrency-tether-rise-recent-glitch-adds-to-worries-200345393
Concerns About Alt-Currency Tether Rise; Recent Glitch Adds To Worries
By Investing.com (Tanzeel Akhtar/Investing.com)   |  Sep 25, 2018 05:20AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Tether (USDT) is currently the eighth most traded cryptocurrency. But its popularity belies a growing array of concerns and controversy surrounding the stablecoin.

Tether Weekly
Tether Weekly

Invented in 2015, coins are issued by Tether Limited, which claims each token is pegged to the US dollar. This 'fixing' to the fiat currency has earned Tether the stablecoin designation. But its stability remains in question since Tether Limited has yet to produce an audit verifying these claims.

Additional problems for the alt-currency surfaced on September 17, when the underlying blockchain protocol on which Tether runs, Omni Layer, froze, halting Tether transactions. At that time Omni tweeted:

"We have identified the issue with a backend client used by our parsing engine that appears to have locked up/become non-responsive. We have restarted all applicable processes and are monitoring them while they verify & resync. This process should take ~ 2-3 hours to complete,”

Though the problem was identified relatively quickly, with the glitch fixed by the next day, it revealed that many exchanges were not running their own Omni Layer nodes, but rather relying on Omni itself to verify transactions. And since Omni operates on a Bitcoin transfer network, a number of market players believe the trade volume of Bitcoin from the 16th of September, to the 17th, was unusually low and can be pinned to this Tether glitch.

Lack Of Transparency, Unproven Reserves

Additional concerns regarding Tether persist as well. Critics have alleged that the Hong Kong-based crypto exchange Bitfinex, which has close ties to Tether, has been issuing more USDT than it has dollars in the bank, in order to drive up the price of Bitcoin. This underscores an industry-wide need to keep an eye on Tether's USDT pricing. Given its alleged peg, the coin has become a pivotal source of liquidity for the crypto markets. And indeed, it generally does trade around the $1 per coin level, but it has gone as low as $0.80 and as high as almost $1.10.

The BTC price manipulation claim, however, hasn't been substantiated. Indeed, a recent study from the University of Queensland Business School found that any impact of Tether on Bitcoin prices and trading volumes is temporary, with volume returning to normal within five days.

Notwithstanding, doubts about the digital currency continue. The token's lack of transparency regarding its reserves spurred the Singapore-based Digifinex exchange to last week announce it had replaced its stablecoin USDT platform with TrustToken's TrueUSD (TUSD). Digifinex has a daily trading volume of nearly $120 million and is among the top 20 global crypto exchanges according to CoinMarketCap.

Tether was created by Bitfinex, explains Chance Du, founder and general partner at Coefficient Ventures. It operates with low transparency she says, which means if it fails it can be very risky for the blockchain community.

“Currently, Tether is the most liquid and adoptable stablecoin in the market, and a better option for the majority when compared to fiat currency and bank regulations. I personally think the adoption of a stable coin is a key development of the crypto currency for massive adoption, however, if this kind of adoption goes into a stablecoin with huge risk, it can eventually become a big bomb in the blockchain industry.”

Though the dollars pegged to Tether's value are held in a designated bank account, Quoc Le, Managing Director of the QUANTA crypto exchange notes that Tether’s legitimacy will continue to be questioned as long as its USD backing cannot be verified.

Says Simon Harman, project head at Loki, a privacy network which will allow users to transact and communicate privately and anonymously over the internet:

“It’s unfortunate that Tether has become a staple of the industry, as it closely resembles the very financial systems that the early adopters of cryptocurrency set out to undermine. Better options for the store value in dollar terms exist, but the market effect it has gained means Tether isn't going anywhere until and if something goes very, very wrong.”

The relevance and role of stablecoins is also being questioned, given that one of the original tenets of the alt-currency asset class was to allow users to move away from centralized, fiat currencies. Still, the idea of stablecoins has been praised as the solution to crypto’s volatility problem, offering the potential to revolutionize crypto trading.

Todd Lemons, chairman of Veridium thinks the existance of stablecoins in the crypto market is important. He believes they're a critical component for moving the asset class into the mainstream. It's his view that the trillions of dollars worth of assets under management are not going to move into these particular markets without some assurance of stability.

"To make sure we create the stability the financial markets are expecting, the assets behind these so-called stable tokens need to be independently auditable in real-time and preferably should be backed by a diversified basket of assets, beyond just fiat currencies. For example, at Veridium, we have created a stable token, CARBON, that is backed by carbon credit assets, which are verifiable on internationally recognized registries, such as the IHS Markit Registry."

Others agree. Cameron and Tyler Winklevoss, who have famously tried to start a crypto ETF but haven't yet succeeded also announced the creation of a USD-pegged Ethereum token that aims to compete with USDT as the stablecoin of choice among Bitcoin traders.

Nevertheless, doubters persevere. Some crypto market analysts believe the best thing that could happen to the nascent "stablecoins" space is that it disappears now, before it gets any larger.

In all seriousness, I think the best thing that could happen to the nascent "Stablecoins" space is that it collapses now before it gets too big.

Concerns About Alt-Currency Tether Rise; Recent Glitch Adds To Worries
 
Concerns About Alt-Currency Tether Rise; Recent Glitch Adds To Worries

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Rory Thomson
Rory Thomson Sep 27, 2018 7:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
but wouldn't that depend on every usdt token having an equivalent usd counterpart? what happens if one day you can't swap your usdt back into actual dollars? unless every token is backed 1:1 then they are creating false liquidity which would increase trading volumes. not necessarily intended manipulation but it would still have an effect on btc price if it meant that demand rose higher. I've used usdt and probably will continue to, but I would like to see some proof that each tether actually represents a dollar somewhere. of course none of that would matter in the crypto space if more and more commerce could be done using the coins. maybe I'm wrong but it seems like the adoption rate of cryptocurrency has slowed down quite substantially.
Reply
1 0
Luboš Motl
Luboš Motl Sep 25, 2018 11:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sorry, Tether is eighth largest-capitalization cryptocurrency but it's the *second* most traded cryptocurrency after Bitcoin, and the volumes are 70% of Bitcoin's. Also, yesterday, media widely reported a study concluding that the Tether wasn't used to manipulate anything. After all, it couldn't. So far it's been always pegged to the U.S. dollar so the Tether is really just another PayPal-like system of U.S. dollar wallets. Whether it will always work and be pegged is a different issue but so far it has been the case so its role for the USD/BTC ratios must be non-existent.
Reply
2 2
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email