The idea of stability is a foreign concept for those who are part of the crypto space. But this foreign element was introduced when a group of developers came up with the idea of Tether.
Tether was introduced in 2014 as the first ‘stablecoin’ in the world of fluctuating prices. The concept behind Tether was that it would be backed by fiat currency i.e. US dollars. The purpose of creating this token was to solve the problem of volatile prices and for a while, it felt as if the solution was working. The price of one Tether remained close to $1 and many crypto exchange giants started using Tether was their trading exchange medium. Many traders made it a dollar substitute and Taiwanese banks used it for processing of foreign transactions.
A few months ago, faith in Tether started to falter and people started questioning its dollar backing claims that each token was pegged to a dollar present in its bank account. Severe price fluctuation of the Bitcoin forced researchers of the University of Texas to publish a paper in which they suggested that due to the incomplete backing of tether cryptocurrency prices were being manipulated.
These accusations were vehemently denied by the Tether creators and a report was published by them in response to the paper in which they tried their best to prove the backing of circulating tethers by US dollar reserves.
The report published in June 2018 by Freeh Sporkin and Sullivan, LLP (FSS), a US law firm, declared that on 1st June 2018 the company’s balance was almost equal to the number of tethers in the market. However, FSS did not carry out any official audits for Tether and only reviewed the balance. They issued statements after the report was made public in which they clearly stated how they had not used any Generally Accepted Auditing Standards or Generally Accepted Accounting Principles.
L. van der Velde, CEO of Tether, told The Independent that despite rumors regarding tether’s backing or circulation ratio, all questions posed by the public have been answered via verification by FSS. He further added that Tether is constantly trying to improve its transparency and moving forward even with all the crypto accounting and assurance standard related challenges.
On 15 October, the price of Tether fell below $0.93 for a while which made many question its claims of stability while many major coins along with Bitcoin saw a spike in their prices. Crypto analysts are suggesting that this price swing in Tether was due to a major sell-off of the coin.
Gemini dollar and Paxos Standard have emerged as Tether’s competitors in the race of stablecoins. If Tether is replaced by any other coin then it is predicted that cryptocurrency market will suffer further disruption as a result.