Cryptocurrency company Tether is being questioned over whether $814m of its digital tokens actually exist. The cryptocurrency prides itself on being a stable alternative to bitcoin, as Tether’s asset (USDT) is pegged one-to-one with the US dollar. However, a lack of evidence and recent revelations suggest the company may not have anywhere near this amount, meaning it would be unable to guarantee the tokens exchange for US dollars.
How Tether Works
The cryptocurrency enables users to dampen the volatility of bitcoin, by tethering their cryptocurrency (USDT) to the US dollar. A small business owner could take payments in bitcoin, and then transfer the bitcoin into USDT, to avoid bitcoin’s price fluctuations. This allows them to stay clear of bitcoin’s volatility. The company claim every USDT token is backed by a US dollar, which it holds in reserves. There are currently $814m USDT tokens outstanding, so there should be $814m in the company’s bank accounts.
Why It’s Important
Whether the crypto firm can account for these reserves is now being questioned. USDT owners are not guaranteed their tokens can be redeemed for dollars, according to their website and the company has not disclosed who it banks with.
In March 2017, Tether lost American bank Wells Fargo, who acted as the correspondent between the US and Taiwanese banks, where the company has banked in the past. Back in March, Tether “said they had about $50m worth of Tether outstanding, they now say it’s $814m, so you can see the jump there without US banking,” said Bloomberg’s Matthew Leising. This colossal jump has drawn attention to the company’s lack of transparency.
Oguz Serdar, a USDT user who encountered issues when attempting to convert $1m USDT into dollars said he, regarding the company, “I don’t think they have even $100m or $200m in a legitimate country.” On declining his request, Tether told Serdar that “due to ongoing banking difficulties we are only able to process requests for verified corporate customers.” Serdar was unable to transfer his funds directly from USDT to dollars. Whether Tether’s claim is legitimate is unclear, but commentators suggest the company may not be able to account for its liabilities.
Tether has not disclosed where its dollar reserves are held.
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