Tether, the ‘shadow cryptocurrency’ more used than bitcoin (and why it raises doubts) – Explica .co
Cryptocurrency in the shadows, the oil that lubricates the system, or stablecoins in some of the ways she referred to Tether, a digital currency that, while less well known, is used more than bitcoin.
Indeed, tether – or USDT – is one of the financial vehicles that opens the door to the vast world of cryptocurrencies.
In other words, it is the tap.
With the exception of the larger ones, like ether or bitcoin, cryptocurrencies cannot be purchased directly with dollars, euros, or Chilean pesos, for example.
On most platforms, customers they must go through an intermediate currency before accessing a cryptocurrency and the most used for this is the link.
According to data collected by asset management company NYDIG, since 2019 around 60% of Bitcoin transactions go through USDT first.
If the rest of the transferred cryptos are added to it, we can understand why the Tether dominates the market since its launch at the end of 2014.
Getty Images The bond is considered a “stablecoin” due to its parity with the dollar.
Its 1 to 1 parity with the dollar makes it very stablebecause it maintains a fixed value or very close to the US dollar.
This is in stark contrast to the extreme volatility of the rest of digital currencies.
This is its main advantage and the one that classifies it as a stablecoin or stable cryptocurrency.
“The idea is that, when they want, users should be able to switch back to exchange your USDT for dollars without being affected by fluctuations of prices like those which usually occur in other cryptocurrencies thanks to the fact that the price is almost “anchored” to that of the dollar “, explain the experts of the bank BBVA.
Therefore, its name in USDT platforms results from membership in USD, the financial symbol for the dollar, along with the T, for the meter.
Getty Images Around 60% of Bitcoin transactions are done with tethers
Has a market capitalization —The measure of a cryptocurrency’s “size” and popularity, calculated by multiplying its current value by the amount available—about $ 60 billion, according to the digital currency price information platform CoinGecko.
A sign of the amount used in the system, its trading volume on Tuesday was over $ 162 billion, compared to $ 65 billion for bitcoin, for example.
And it is that, as large corporations and investment funds adopt or open their doors to cryptocurrencies, their use has spread among retail investors, experiencing the market. a boom unprecedented.
The company issuing the USDT commits to keep the same number of dollars in reserve in your balance than the hitch put into circulation.
This is the main difference with the rest of digital currencies: this currency depends on a centralized entity that supports the value with real assets behind.
And this 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 the operations.
But Tether’s role as a liquidity provider resembles that of USDT’s issuing company, Tether Ltd., as a central bank.
And that gave it many uses, but it also gave it a “inordinate power“that many analysts and cryptocurrency experts have warned.
According to them, the use of the tether represents a bottleneck for the entire market.
And that 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 magnified by its disproportionate impact on high-frequency trading, which dominates flows, ”he said.
Another problem attributed to cryptocurrency is poor transparency.
Since its inception, Tether Ltd. has taken care to keep in its reserve the in cash equivalent to digital currency in circulation; that is, when you issue a USDT, you put a dollar on your balance sheet and, conversely, when someone sells, they withdraw a dollar.
However, an investigation by the New York attorney general showed that was not always the case.
Specifically, said lawsuit investigated the Bitfinex login platform for two years for allegedly making “false statements” about its support for virtual currency and “hedging” massive losses.
The court process was settled in February with a millionaire deal, according to the prosecution itself, in which the executives of Bitfinex and Tether promised to cease operations in the state, to pay a fine of $ 18.5 million. Americans and “to increase their transparency”, although “Neither admit nor deny” the allegations of fraud authorities.
“The ties have always been fully supported,” Stuart Hoegner, Tether’s general counsel, insisted in a statement.
Getty Images Bitcoin mining has significant energy costs.
Details of reservations
However, following this agreement with the prosecution, the company you will have to publish your report several times of its reservations, putting an end to the directors’ refusal to submit to an independent audit during these years.
And the first of the public documents already available on the link revealed that its cash reserves are the same as in 2019 and that did not keep pace with the broadcast, which triggered the alarms again.
His dollar holdings total US $ 2.1 billion in miscellaneous assets, which is only 3.5% of the USDT in circulation.
Finally, the JP Morgan specialist recalls that if tether “is immersed in a transformation of classic liquidity in the tradition of traditional commercial banks, not subject to the same strict control regime and the disclosure that these entities “.
And that continues to be a risk for those who participate in the crypto market.
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