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ToggleStablecoin is one of the "bloodstreams" operating in the cryptocurrency world. After the dramatic collapse of stablecoins like UST (Terra) or BUSD (Binance), many investors have lost faith in this model. However, Tether (USDT), the largest stablecoin currently, still stands firm amid waves of doubt.
So what makes Tether the "kingless king" of the stablecoin world? Behind USDT is an ecosystem, a company, and an extremely special financial strategy. Join Allinstation in exploring the giant Tether empire through the article below!
What is Tether (USDT)?
Tether (USDT) was born in 2014 with the goal of solving one of the biggest problems in the crypto market at the time: the lack of a bridge between cryptocurrency and fiat currency. At that time, users found it very difficult to convert between USD and crypto due to banking barriers, while the market lacked a stable digital asset to take refuge in during volatility.
Initially, the project was called Realcoin, founded by Brock Pierce, Reeve Collins, and Craig Sellars. It was later renamed Tether in November 2014 to accurately reflect its "pegged" nature. The first Tether token was issued on Bitcoin's Omni Layer platform, before expanding to other blockchains like Ethereum (ERC-20), Tron (TRC-20), Solana, Avalanche, helping to increase speed and scalability.
Tether was quickly integrated into Bitfinex, one of the largest exchanges at the time, thereby boosting USDT's popularity. From a simple solution for flexible trading with USD, Tether has become a liquidity pillar of the Web3 market, supporting numerous DeFi, CeFi, and decentralized applications.
The value of USDT is "pegged" to the US dollar at a 1:1 ratio, meaning each USDT is backed by 1 USD or equivalent assets.
USDT Stablecoin was created to solve two main problems in the cryptocurrency world:
- Reduce price volatility: Compared to Bitcoin or Ethereum, USDT has a stable value, helping investors avoid strong "dump" periods.
- Bridge between crypto and fiat currency: USDT allows quick trading between crypto and fiat without needing to withdraw to a bank.
How does USDT work?
USDT operates on a centralized mechanism:
- When users deposit USD into Tether, the company will issue the corresponding amount of USDT.
- When users return USDT, they will be able to withdraw USD and that USDT will be burned.
This model helps USDT maintain a 1:1 ratio. However, because this is a centralized model, Tether must commit to always having sufficient reserve assets to ensure liquidity and community trust.
What are Tether's reserve assets?
As of the end of 2023, according to Tether's transparent report:
- $63 billion: US Government Bonds (T-Bills).
- $3.5 billion: Precious metals (gold).
- $2.8 billion: Bitcoin (BTC).
- $3.8 billion: Other strategic investments.
- $4.8 billion: Secured loans.
Total reserves reach over $78 billion, while USDT's market capitalization as of May 2024 has exceeded $124 billion, ranking 3rd after BTC and ETH. In 2023 alone, Tether issued over 22.75 billion USDT, clearly the most stable "money printer" in the crypto market.
Who is behind the Tether empire?
Paolo Ardoino – New CEO of Tether
- Joined Bitfinex in 2014, becoming Tether's CTO.
- December 2023: Officially became CEO.
- Played a crucial role in: Building a transparent financial system, deploying Holepunch technology (Web3 communication), and promoting Bitcoin mining in low-energy regions like LatAm.
Bitfinex – the "sister" exchange of Tether
Bitfinex is one of the oldest exchanges with a close connection to Tether. Although investigated by the New York Attorney General (NYAG) in 2021, Tether has maintained its position by continuously publishing reserve asset reports and applying periodic audits.
Does Tether have risks?
The main concerns currently exist with Tether:
- Lack of third-party audit: Despite transparent reports, there are not always independent cross-checks from the Big Four.
- Centralized control: As a centralized stablecoin, Tether can be affected by legal regulations or internal decisions.
- Fierce competition: USDC (Circle), DAI (MakerDAO), FDUSD (First Digital) are gradually expanding their influence.
These risks exist but are not overly concerning, and it cannot be denied that Tether is a "central bank" of the Web3 world – requiring no license, no government, but managing a massive asset pool of over $100 billion.
Tether's Legal Encounters
New York Attorney General's Office (NYAG) Investigation – 2019 to 2021
In 2019, the New York Attorney General's Office (NYAG) accused Tether and Bitfinex (sharing the same management team) of concealing an $850 million loss by using USDT reserve funds to cover it.
The investigation concluded in 2021 with Tether agreeing to:
- Pay a $18.5 million fine.
- Commit to transparency by publishing quarterly reserve asset reports for 2 years.
US Commodity Futures Trading Commission (CFTC) – 2021
In October 2021, the CFTC fined Tether $41 million for:
- Providing incorrect information that USDT was always 100% backed by USD cash.
- In reality, between 2016 and 2018, only 27% of USDT was fully backed by cash, with the rest being other assets like commercial papers, bonds...
- Additionally, Bitfinex was fined $1.5 million for operating an unregistered trading platform.
Other Concerns about Transparency and Auditing
Tether continuously faces community doubts about:
- Not hiring Big Four auditing firms.
- Lack of transparency in reserve asset reports.
- Potential uncontrolled USDT printing to manipulate market prices.
Although Tether's transparent reports have become more detailed since 2022, there are still many debates about their reliability.
The Future of Tether and Stablecoins
In the context of global central banks piloting CBDCs (central bank digital currencies), stablecoins like USDT can be both allies and competitors. Tether is expanding into areas such as:
- Cross-border payments.
- Bitcoin mining & Green energy.
- Web3 communication infrastructure with Holepunch and Keet.
With its growth trajectory and diversification strategy, Tether is not just a stablecoin issuer but is becoming a pillar of the global Web3 ecosystem.
Summary
Tether (USDT) is not only the stablecoin with the largest market capitalization but also a core part that helps the crypto market operate stably. While still controversial and doubted, it cannot be denied that Tether has proven its status and tremendous influence over the past decade.
Allinstation hopes this article has provided a comprehensive view of Tether and USDT. Equip yourself with knowledge before making investment decisions!
