In the world of digital currencies pursuing various types of "consensus", it is obviously difficult to reach a consensus on Tether's views, which is highly controversial and eye-catching.
In the eyes of investors looking for stable tokens, Tether is a panacea for solving the shortcomings of digital currency volatility; but US regulators and some critics think it might be a "demon" and try to clarify the token. Whether it is a scam; at the same time, some researchers want to uncover the magic side of Tether, who suspect that the token has the suspicion of manipulating bitcoin price and market value.
Tether, or its USDT-based token USDT, is the largest stable currency on the market. The problem is that although Tether has repeatedly stated that all USDTs are supported by the corresponding US dollar reserves at a 1:1 rate, the company has been unable to provide audit reports that satisfy the market. Until April 2019, Tether's general counsel, Stuart Hoegner, said in a statement that only 74% of the company's US dollar stable USDT was supported by cash or cash equivalents, not the company's declared US dollar. The linked stable currency is backed by 100% cash and cash equivalents."
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It’s really amazing!
The debate about whether Tether is a god, a demon, or a demon has never stopped. We hope to clarify the magic, demon, and possible magic of Tether to the readers of the chain through the following questions.
1. What exactly is Tether?
Simply put, Tether is a special cryptocurrency that is distributed primarily on the Bitcoin blockchain via the Omni Layer protocol – of course, the USDT can now also be issued on Ethereum and Wavefield.
Unlike Bitcoin, where prices fluctuate wildly every day, Tether's tokens are designed for stable currency prices. The dollar-linked token issued by Tether is “USDT” and its design price should remain near $1. For a long time, Tether said that each USDT it issued had $1 in bank accounts to support it. Similarly, Tether also issued the euro-linked token "EURT".
Tether explains this in the white paper: “The digital tokens supported by fiat currency provide a powerful and decentralized approach for individuals and organizations, while at the same time using a familiar accounting unit to exchange value. Innovative blockchains Auditable and cryptographically protected. Capital-backed token publishers and other market participants can use blockchain technology and embedded consensus systems to trade in familiar, less volatile currencies and assets. For price stability, we propose a way to maintain a one-to-one reserve ratio between Tether's cryptocurrency token and its associated real-world assets (legal currency)."
In the eyes of Tether fans or ordinary investors, this expression is full of sincerity; however, in the eyes of critics, this is just Tether's official statement.
2. Why is Tether so popular?
In the most straightforward language, the biggest advantage of stable currency is that it will not show huge price fluctuations like other virtual currencies. It will only change with the change of the US dollar exchange rate. Therefore, in the digital currency market, the price is stable. Investors provide a safe haven when the market crashes.
Many traders use it as a substitute for the dollar. Tether's tokens are easier to transfer between cryptocurrency exchanges and other online platforms because it doesn't have to be turned around between banking systems. Stable prices make this token a convenient tool for investing in other cryptocurrencies.
Almost all exchanges offer USDT trading pairs, allowing customers to buy and sell Tether in exchange for encrypted tokens such as Bitcoin.
So recently, even though Bitfinex and Tether are facing lawsuits, most high-frequency traders can't give up using USDT, because other stable currencies in the market can't meet their trading needs, USDT is so popular, almost all exchanges support USDT. Many traders believe that a reliable alternative to USDT cannot be found in the short term.
3. Who controls Tether?
Today, this is not a problem. But you need to understand the background
The page on "About Us" (https://tether.to/about-us/) on Tether's official website did not appear until after December 5, 2017, but occasionally it will disappear for a while. Since December 5, 2017, Tether has revealed that its management team is the same as the Bitfinex exchange, as shown in the table below.
From a point of view, this is probably related to the receipt of a subpoena from the US Commodity Futures Trading Commission by Tether in December 2017.
Even when the article was first published in the early 2018, Wikipedia introduced the "Tether" entry: "Tether and Bitfinex never disclose the company location and management team of the two companies."
Prior to this, Tether did not disclose its management team, but the currency circle has been speculating about the relationship between the two.
From the information that Tether disclosed later, the market rumors were not false, and Tether and the Bitfinex exchange management team were highly coincident.
4. Why is Tehter fascinating? What is the suspicion of critics about it?
As the cryptocurrency that claims to be fully linked to the US dollar and other legal currency and achieve 1:1 legal currency blessing, Tether faces the biggest question as to whether the USDT issued by the company has a corresponding US dollar deposit in the company's account as a redemption reserve.
Of course, the expression on the Tether homepage has been frank: "Our reserve holdings are announced every day and professional audits are conducted on a regular basis." But critics have pointed out that this is just a talk and it has not been done.
To be fair, Tether hired an accounting firm, Friedman (FLLP), to conduct an audit in 2017. In September 2017, Friedman CPA issued a report confirming the dollar balance held by Tether at the time node. According to the report, “At the audit time point of September 15, 2017, a bank issued US$382,064,782 under an account in the name of Tether.”
However, the report did not disclose the name of any bank, nor did it mention the jurisdiction in which the bank operates. The report also stated: "Friedman did not evaluate the terms of the above bank account, nor did he describe the ability of the client to obtain funds from the account, nor did it indicate whether the funds were available for purposes other than Tether token redemption."
More dramatic, in January 2018, Tether announced a severance of cooperation with Friedman Certified Public Accountants. Neelabh Dixit, co-founder of Hong Kong digital currency investment company Cryptomover, said: "So far, this is a black box."
Tether's own statement reads: "Given Friedman's extremely detailed procedures for a relatively simple balance sheet, it is clear that auditing is impossible within a reasonable time frame. Because Tether is the The first company in the field to embrace this process and pursue this transparency, so there is no precedent to guide the process and there is no benchmark to measure its success."
In the eyes of critics, the statement stated that Tether lacked transparency and that the audit process did not appear to be sufficient, at least inconsistent with the commitments on the Tether website. This may lead to the rumors of Tether from the end of last year to the beginning of this year, such as claiming that Tether is a Ponzi scheme.
5. Is Tether so evil?
To be fair, lack of transparency does not necessarily indicate fraud. In addition to currency stability, Tether has its advantages: it allows users to send and receive dollars, transactions are not easily blocked, and users do not need special permissions – but after being hacked, Tether requires all users to upgrade to new clients. The transaction is much more complicated than before.
Tether also gives users a degree of confidentiality when trading. While organizations that issue and redeem Tether need approval and KYC procedures to confirm their identity, individual users can use Tether by generating a public/private key pair, just like Bitcoin.
Regulators may not be particularly happy about this, and many banks will be under pressure to work with Tether, because accepting Tether as a customer may violate bank compliance procedures, such as rules to prevent money laundering. As a result, Tether may try to avoid revealing its operational details to the Reserve Bank and has been trying to find a small and medium-sized institution that is not as strict as a big bank.
In addition, Tether's supporters believe that even if Tether encounters problems, Bitfinex has enough resources to save it. The Bitfinex exchange may have a daily income of more than $1 million during the digital currency bubble (assuming a daily trading volume of 100,000 bitcoins, a commission of 0.1%, and a bitcoin unit price of $10,000).
6. So, is Tether lying?
As a news media, we still use the facts to speak.
For a long time, Tether has always said that the US dollar-linked stable currency USDT is fully supported by the equivalent dollar reserve.
Until March 2019, social network users found that Tether's official website had deleted the previous statement that its tokens were fully supported by the US dollar, and the stable currency adjusted for the issue was supported by reserves such as “traditional currency and cash equivalents”. . Specifically: “Every Tether is backed by our 100% reserve, including traditional currency and cash equivalents, and sometimes other assets and accounts receivable. These assets and receivables may come from Tether Loans issued by third parties, which may include affiliated entities."
By the end of April 2019, Tether's general counsel, Stuart Hoegner, said in a statement that only 74% of the company's US dollar stable USDT was supported by cash or cash equivalents, not the company's declared US dollar. The linked stable currency is backed by 100% cash and cash equivalents."
You said by yourself, is Tether lying?
7. Does Tethter have the ability to influence the market?
Tether's "magic" is that many people believe and are trying to prove that it has the ability to influence the price of the entire cryptocurrency market.
At the earliest, people questioned the possibility of manipulating bitcoin prices on the Bitfinex exchange.
The famous Tether skeptic Bitfinex 'ed showed a video in a blog post in August 2017 that showed a trader hanging a lot of bitcoin orders on the Bitfinex platform and canceling the order once the bitcoin price starts to rise. . Mt.Gox is used to manipulate the market in a similar way, and the exchange handled 70% of the world's bitcoin transactions before its bankruptcy in 2014.
As the number of USDTs issued by Tether increased dramatically in 2018, more research has emerged in the market, hoping to reveal the possible link between Tether's issuance and liquidity and bitcoin price changes. You can refer to an article published last February, we selected and translated a comprehensive and simple review of the analysis and summary, "View: Why I believe Tether can be used to manipulate the trend of the cryptocurrency market" for readers' reference .
In various studies, a well-known report was published by an anonymous author on the website (http://www.tetherreport.com/).
The author used the Kolmogorov-Smirnov test to verify the correlation between Tether tokens and bitcoin price increases, and argued that the issuance of Tether tokens had a significant impact on bitcoin prices.
Of course, considering that the USDT itself is considered to be a liquidity in the virtual currency market, it is not difficult to understand that the issuance of Tether tokens has increased liquidity and pushed the price of bitcoin higher. However, if one considers that the token USDT issued by Tether is suspected of having no one-on-one dollar legal currency reserve support, the effect of “manipulating” the bitcoin price through “false exaggeration” is quite serious.
In addition, the anonymous author also validated the USDT trade data on the Bitfinex exchange using Benford's Law, which is commonly used to identify data fraud, indicating that the USDT coin and deposit statistics on the Bitfinex exchange were Manipulating suspicions – but only "suspected", there is no more substantial evidence to sit down.
These studies are still in very early stages, often triggering opposition and questioning these studies. In short, in the eyes of these researchers, Tether is undoubtedly full of demon, affecting the trend of bitcoin prices.