Tether, the company behind one of the biggest and most widely used stablecoins on the market (USDT), has updated the terms on its website to further clarify how their reserves work. The small update, however, suggested that its USDT coin is not 100 percent backed by US dollars, a claim many have come to criticize.
Tether Issues a Vital Update to Its Website
The world of cryptocurrencies has always been a tumultuous one, with new market-breaking scandals and scam allegations almost every day. Tether, one of the more controversial big players in the industry, has been under the spotlight since the creation of its stablecoin in 2014.
Many cryptocurrency experts and investors have questioned whether the company actually had enough fiat currency to back its eponymous stablecoin, especially as Tether has continually failed to provide conclusive insight into its reserves.
And now, after months of speculation and controversy, Tether responded to the issue, though not in a way the public had been waiting for. On Mar. 14th, the company issued a small, but vital update to its website, one that was spotted by a keen-eyed Redditor.
The update directly contradicts Tether’s claim that its USDT stablecoin is 100 percent backed by US dollars. While the company stated that every USDT token is “fully backed,” they added that they might not be backed by fiat currency alone.
New Terms Cast Doubt on Tether’s Credibility
Tether’s previous terms asserted that every tether is “always” pegged to traditional currency held in its reserves, saying that 1 USDT is always equivalent to 1 USD.
However, the newly updated terms, while vague, contradict that claim.
“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’),” the website read.
The news about Tether’s questionable reserves have gotten a lot of media traction, but a large percentage of crypto users were not surprised by the newly surfaced information. Many Redditors pointed out that the company’s reputation was already on thin ice, especially after its unwillingness to publish an audit of its finances made by a third party.
This positions Tether as an unregulated fractional reserve bank, as Forbes pointed out, adding that the company’s business model was “very risky.” Pegging a volatile asset to another volatile asset is a recipe for disaster, as Tether could easily be backing its coins with other assets that are subject to daily price fluctuations, such as crude oil.
With its sister company, the Bitfinex exchange, under scrutiny for allegedly manipulating the price of Bitcoin in 2017 and 2018, Tether is standing on shaky ground. As of press time, no major price fluctuations of USDT were recorded, and the market cap remained more or less the same. It is yet to be seen how this impacts the company, and the ecosystem, in the long run.