Price Watch, Rumors, Stablecoins

Tether’s New Update Suggests USDT Is Not 100% Backed With Fiat

Tether’s New Update Suggests USDT Is Not 100% Backed With Fiat

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

Source: Forbes

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.

Tether | USDT

Updated: March 15, 2019 at 12:46 pm PDT
$1.01 | 0.14%

Tether, currently ranked #9 by market cap, is down 0.14% over the past 24 hours. USDT has a market cap of $2.02B with a 24 hour volume of $7.9B.

Chart by CryptoCompare

Tether is down 0.14% over the past 24 hours.

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Priyeshu Garg

Priyeshu is a software engineer who is passionate about machine learning and blockchain technology. He holds an engineering degree in Computer Science Engineering and is a passionate economist. He built his first digital marketing startup when he was a teenager, and worked with multiple Fortune 500 companies along with smaller firms. When he is not solving the transportation problems at his company, he can be found writing about the blockchain or roller skating with his friends.

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