Stablecoins are one of the 'lifebloods' of the cryptocurrency world. After the infamous collapse of stablecoins like UST (Terra) or BUSD (Binance), many investors lost faith in this model. However, Tether (USDT), the largest stablecoin today, remains steadfast amidst the storm of skepticism.
So what makes Tether the 'uncrowned king' of the stablecoin world? Behind USDT is an ecosystem, a company, and an extremely unique financial strategy. Let's explore the massive Tether empire through the article below!
What is Tether (USDT)?
Tether (USDT) was created in 2014 with the goal of addressing one of the biggest issues in the crypto market at the time, which was the lack of a bridge between cryptocurrencies and fiat money. 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 shelter from volatility.
Initially, the project was named Realcoin, founded by Brock Pierce, Reeve Collins, and Craig Sellars. It was later renamed Tether in November 2014 to accurately reflect its 'price pegging' nature. The first Tether token was issued on Bitcoin's Omni Layer, before expanding to many other blockchains such as Ethereum (ERC-20), Tron (TRC-20), Solana, Avalanche, increasing speed and scalability.
Tether was quickly integrated into Bitfinex, one of the largest exchanges at the time, thereby boosting the popularity of USDT. From a simple solution for flexible trading with USD, Tether has become a liquidity pillar in the Web3 market, supporting a multitude of DeFi, CeFi transactions, and decentralized applications.
The value of USDT is 'pegged' to the U.S. dollar at a 1:1 ratio, meaning each USDT is supported by 1 USD or equivalent assets.
Stablecoin USDT was created to address two main issues in the cryptocurrency world:
Price volatility reduction: Compared to Bitcoin or Ethereum, USDT has a stable value, helping investors avoid severe 'dumps'.
The bridge between crypto and fiat money: USDT allows for quick transactions between crypto and fiat without needing to withdraw to banks.
How does USDT work?
Every 1 USDT is backed by assets equivalent to 1$
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 the USDT will be burned.
This model helps USDT maintain the 1:1 ratio. However, because this is a centralized model, Tether must commit to always having enough reserve assets to ensure liquidity and trust from the community.
What are Tether's reserve assets?
As of the end of 2023, according to Tether's transparency report:
63 billion USD: U.S. government bonds (T-Bills).
3.5 billion USD: Precious metals (gold).
2.8 billion USD: Bitcoin (BTC).
3.8 billion USD: Other strategic investments.
4.8 billion USD: Secured loans.
Total reserves exceed 78 billion USD, while the market capitalization of USDT as of May 2024 has surpassed 124 billion USD, ranking third after BTC and ETH. In 2023 alone, Tether issued an additional 22.75 billion USDT, clearly being the most stable 'money printer' in the crypto market.
Who is behind the Tether empire?
Paolo Ardoino – the new CEO of Tether
Joined Bitfinex in 2014, becoming Tether's CTO.
December 2023: Officially became CEO.
Plays a crucial role in: Building a transparent financial system, deploying Holepunch technology (Web3 communication), and promoting Bitcoin mining in regions with cheap energy like LatAm.
Bitfinex – the 'sister' exchange of Tether
Bitfinex is one of the oldest exchanges and has a close relationship with Tether. Although it was investigated by the New York Attorney General (NYAG) in 2021, Tether has maintained its position thanks to continuously disclosing reserve asset reports and conducting regular audits.
Does Tether have risks?
The main concerns currently existing with Tether:
Lack of third-party audits: Despite having transparency reports, there is not always independent cross-checking from the Big Four.
Concentration of control: As a centralized stablecoin, Tether may be affected by regulatory or internal pressures.
Intense competition: USDC (Circle), DAI (MakerDAO), FDUSD (First Digital) are gradually expanding their influence.
The aforementioned risks exist but are not overly concerning, and it cannot be denied that Tether is a 'central bank' of the Web3 world – no licenses required, no government necessary, yet managing a huge asset base of over 100 billion USD.
Tether's legal troubles
The investigation by the New York Attorney General's Office (NYAG) – 2019 to 2021
In 2019, the New York Attorney General's Office (NYAG) accused Tether and Bitfinex (sharing the same management team) of hiding an 850 million USD loss by using USDT's reserve funds to cover it.
The investigation concluded in 2021 with Tether agreeing to:
Paid a fine of 18.5 million USD.
Committed to transparency by publishing quarterly reserve asset reports for 2 years.
U.S. Commodity Futures Trading Commission (CFTC) – 2021
In October 2021, the CFTC fined Tether 41 million USD for:
Provided false information that USDT is always 100% backed by cash USD.
In fact, from 2016 to 2018, only 27% of the USDT supply was fully backed by cash, while the rest consisted of other assets like commercial papers, bonds, etc.
In addition, Bitfinex was also fined 1.5 million USD for operating an unregistered trading platform.
Other concerns about transparency and audits
Tether continuously faces skepticism from the community regarding:
Does not hire Big Four audit firms.
Lack of transparency in the collateral asset reports.
Possibility of printing uncontrolled USDT to manipulate market prices.
Although Tether's transparency reports have become more detailed since 2022, there is still much debate 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 its operations into areas:
Cross-border payments.
Bitcoin mining & green energy.
Web3 communication infrastructure with Holepunch and Keet.
With its growth trajectory and diversification strategy, Tether is not only a stablecoin issuer but is becoming a pillar of the global Web3 ecosystem.
Summary
Tether (USDT) is not only the largest market-cap stablecoin but also a core part of the crypto market's stable operation. Although there is much controversy and skepticism, it cannot be denied that Tether has proven its position and formidable influence over the past decade.