Tether, the “shadow cryptocurrency” more used than bitcoin (and why it raises doubts) – Explica .co

The cryptocurrency in the shadow, the oil that greases the system or stablecoinson some of the ways in which it has referred to tether, a digital currency that, although less known, is more used than bitcoin.

This is so because tether – or USDT – is one of the financial vehicles that open the door to the vast world of cryptocurrencies.

In other words, it is the stopcock.

With the exception of the largest, such as ether or bitcoin, cryptocurrencies cannot be bought with dollars, euros or Chilean pesos directly, for example.

On most platforms, clients they have to go through an intermediate currency before accessing any cryptocurrency and the most used for this is tether.


According to data collected by asset management firm NYDIG, since 2019 about 60% of bitcoin transactions go through USDT first.

If the rest of the cryptos that are transferred are added to this, we can intuit why the tether dominates the market since its launch in late 2014.

Getty ImagesThe tether is considered a “stablecoin” due to its parity with the dollar.

Its 1 to 1 parity with the dollar makes it very stable, since it maintains a fixed value or very close to the US currency.

This is in stark contrast to the extreme volatility of the rest of digital currencies.

That is its main advantage and the one that classifies it as a stablecoin or stable cryptocurrency.

“The idea is that, whenever they want, users should be able to go back to exchange your USDT for dollars without being affected by fluctuations of price like those that usually occur in other cryptocurrencies thanks to the fact that the price is virtually ‘anchored’ to that of the dollar ”, explain the experts of the BBVA bank.

Hence, its name in the USDT platforms results from joining USD, the financial symbol for the dollar, with the T, for theter.

Image of a digital dollarImage of a digital dollar
Getty ImagesAround 60% of bitcoin operations are carried out with tethers

Has a market capitalization —The measure of the “size” and popularity of a cryptocurrency, calculated by multiplying its current value by the amount available—of about $ 60 billion, according to the digital currency price information platform CoinGecko.

As a sign of how much is used in the system, its trading volume on Tuesday was more than $ 162 billion, compared to $ 65 billion for bitcoin, for example.

And it is that, to the extent that large companies and investment funds adopt or open their doors to cryptocurrencies, their use has spread among retail investors, making the market experience a boom without precedents.

The company that issues the USDT is committed to keep the same number of dollars in reserve in your balance than the tether put into circulation.

That is the main difference with the rest of digital currencies: this currency does depend on a centralized entity that supports the value with real assets behind.

And it contrasts with the vision of the creator of bitcoin, whose pseudonym is Satoshi Nakamoto: the cryptocurrency would be exchanged between users, without intermediaries or anyone to control operations.

Bitcoin chart May 19Bitcoin chart May 19
BBC

Bottleneck

But tether’s role as a provider of liquidity resembles the USDT issuing company, Tether Ltd., to a central bank.

And this has given it many uses, but it has also given it a inordinate powerthat many analysts and experts in cryptocurrencies have been warning about.

According to these, the use of tether represents a bottleneck for the entire market.

And this could have unintended consequences, as analyst Josh Younger, an expert at investment bank JP Morgan, explained in a lengthy report.

“If an issue arises that could affect investors’ willingness or ability to use USDT, the most likely outcome would be consequences in market liquidity of cryptocurrencies that could be amplified by its disproportionate impact on high-frequency trading, which dominate the flows, “he said.

Little transparency

Another problem that is attributed to cryptocurrency is poor transparency.

Since its inception, Tether Ltd. has ensured that it maintains in its reserve the cash equivalent to the digital currency in circulation; that is, when you issue a USDT, you place a dollar on your balance sheet and, conversely, when someone sells, they withdraw a dollar.

However, an inquiry by the New York Attorney General showed that this was not always the case.

Specifically, said prosecution investigated the Bitfinex tether platform for two years for allegedly making “false statements” about its support of the virtual currency and “covering up” massive losses.

The legal process was settled in February with a millionaire agreement, according to the prosecution itself, in which the managers of Bitfinex and Tether promised to stop operating in the state, pay a fine of US $ 18.5 million and “increase their transparency ”, although “Neither admitting nor denying” allegations of fraud from the authorities.

“The tethers have always been fully supported,” Tether general counsel Stuart Hoegner insisted in fact in a statement.

Data centerData center
Getty ImagesMining bitcoin produces large energy costs.

Detail reservations

However, as a result of that agreement with the Prosecutor’s Office, the company you will be forced to publish your report multiple times of its reserves, putting an end to the refusal of the directors to submit to an independent audit in these years.

And the first of the public documents already available on tether revealed that its cash reserves are the same as it had in 2019 and that has not kept pace with the broadcast, which has set off the alarms again.

His dollar holdings total a total of US $ 2.1 billion in various assets, which represents only 3.5% of USDT in circulation.

Finally, the JP Morgan specialist recalls that although tether “is immersed in a classic liquidity transformation in the line of traditional commercial banks, not subject to the same strict supervision regime and disclosure that those entities “.

And this continues to be a risk for those who participate in the crypto market.

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