Tether or “USDT” is the King of Stablecoins in the crypto world, having more than doubled its market cap from $2 billion at the start of 2019 to over $4.1 billion to date. Compared to its competitors, it maintains roughly a 97% share, suggesting that there is no competition, at least not yet. If Libra, Binance, Google, or the Chinese homegrown digital equivalent of the Yuan ever take hold, then we might have a real race. For now, USDT is the intermediary token of choice in the retail crypto trading arena, as it aims to protect consumers by being “tethered” to real world currencies.
Tether’s history goes back to November of 2014, having been re-branded as Tether in 2015, but in five short years, its daily volume has eclipsed that of Bitcoin. How has it achieved such success? It is definitely a hit with crypto-to-crypto exchanges, where traders can literally go in and out of positions without ever having to touch fiat currency. As such, it is a perfect holding medium for traders, while they wait for the “risk-on” green light to shine brightly. The fact that it is so useful is why it has expanded its footprint to include most all of the notable exchanges as a solid crypto pairing. Current estimates are that it is traded in nearly every marketplace in more than 400 trading pairs.
The token, however, has been mired in controversy for years. As a stablecoin pegged to the U.S. Dollar, there are supposed to be Dollar reserves in a trust matched 1-for-1 for every USDT token issued. The management team has been anything but transparent, which leads doubters to be suspicious. There are two primary lawsuits, which currently hound the stablecoin, but these cases have not slackened the use of the token by loyal traders. Today’s market cap is in excess of $4.1 billion, having ballooned from a few hundred million in 2017.
The New York Attorney General is behind one lawsuit that contends that investors in the state have been misled. Filings indicate that the parent company of the Tether Trust is iFinex, Inc., a Hong Kong-based enterprise that is registered in the British Virgin Islands. It also owns and operated the Bitfinex exchange, also based out of Hong Kong. The issue is that management moved $850 million from the USDT trust to cover supposed losses on an overseas processing agreement that went afoul for Bitfinex. Documentation now states that reserves are backed by cash and loan agreements, not cash only.
The second lawsuit relates to alleged charges of price manipulation, since movements in Bitcoin prices tends to correlate very heavily with Tether transactions, as you might expect, since investors would be moving funds in and out of USDT in order to obtain or close positions in BTC. Two academics published a paper last year, claiming that movements of Tether had manipulated BTC prices, according to their algorithms. A class action case has been filed claiming $1 trillion in damages, but Bitfinex and Tether executives categorize these allegations as lacking any real support.
The Bitcoinist has stated that Tether has weathered these storms, as well as threats from futures markets: “USDT has defied the skeptics, and so far has managed to survive and boost the liquidity of crypto markets. Additionally, Tether is somewhat threatened by USD-based futures markets. But so far, the bulk of BTC is traded on spot markets. And Tether is making forays into futures trading, as in the case of the OKEx USDT-settled futures.”
Tether is now the most popular asset for purchasing BTC. Investors like the ease of transacting in the stablecoin, and it is also rising in its use at the point of sale, as well. Sean MacKay, operations lead at CoinPayments.net, had these observations that he shared with Bloomberg: “Merchants used to accept Bitcoin, Ethereum, Ripple and convert it into Tether in order to hedge against the volatility. Now we are seeing the payments just being done directly in Tether. The fact that they have so many users just goes to show even if there’s nothing backing it, people are still using it.”