Monday, September 20, 2021

Tether: A Necessity or a Liability?

It’s time to talk about Tether. The stablecoin has been a problem for the crypto space for a long time, and the mounting legal challenges and risks are more than just FUD. With the right approach, crypto can move on from Tether and other dubious stablecoins and emerge stronger and more mature than ever before while discharging a major source of risk. It is not a good idea to just ignore the problems of Tether and hope it all goes away or dismiss it as fake rumors circulating.

Tether’s Financial History

The background of Tether has always been questionable. Many of the founders of the company have prior links to financial fraud or have almost no online presence. Crypto emphasizes transparency, openness, and access for all, not to mention freedom, so both in terms of legal cleanliness and values, Tether is not well aligned with the mission of crypto. There are plenty of crypto projects that have better teams and more trustworthy origin stories than Tether. Tether just happened to emerge at a much earlier and murkier point in the history of crypto, and it has grown so large and central that it is hard to imagine a replacement.

There are several concerns about the financial doings of Tethe r. For one thing, Tethe r spent a long time denying the fact that they had a core link and shared leadership as well as ownership with the exchange Bitfinex. Tethe r and Bitfinex are run by the same company and have intermixed finances, but for years they both claimed to be separate. For a currency and a major exchange to conceal such a link is a poor sign for their trust and for the health of their transactions.

There is also the question of backing. Tether has never provided a full accounting of their reserves. The company maintained for years that their issued Tethe r units were backed one to one by cash dollars. However, under heavy pressure from the New York Attorney General’s office, Tethe r eventually admitted that they are not fully backed, and much of their reserves consists of commercial paper, low-grade corporate loans with no clear origin. Repeatedly lying about reserves is not a good sign for a healthy stablecoin.

Federal Investigations Regarding Tether

The recent news has been that the US Justice Department has an active criminal investigation into Tether executives for bank fraud. A federal criminal investigation is extremely serious, and generally, it does not become public knowledge until and unless Justice is highly confident that they can successfully convict based on the evidence they have collected. The investigation can open up more charges and more evidence as it proceeds. Other branches of the federal government, like the Treasury Department, have indicated that they plan to examine stablecoins and Tether much more closely.

It isn’t yet clear where all this will lead, but none of it bodes well for Tether. That doesn’t mean it has to be a problem for Bitcoin, though. It may well be the case that the need for stablecoins is passed. Stablecoins came about before crypto had reached its current level of mainstream acceptance and visibility. It might not be necessary to use stablecoins for coin-to-coin transactions and to obtain banking anymore.

Even if stablecoins are still important, that doesn’t mean Tether has to be the most-used choice. Moving away from a reliance on Tether isn’t giving in to FUD– it’s making a smart move to minimize risk. It’s entirely possible that it all comes to nothing, but a good investment is all about managing risk correctly. Removing such risk is good for the crypto ecosystem and a move towards making it a better place for institutional investment and acceptance as a currency.

Latest news
Related news