Because of its “misleading” claims regarding the so-called stablecoin’s full dollar backers, the business that makes tether tokens has been hit with an $8.3 million punishment from the Securities and Exchange Commission (SEC).
There is a Tether token (USDT) backed by the equivalent in fiat money in Tether’s reserves when the company began in 2014, claiming that each USDT token is always worth $1.00. As a result of increased regulatory scrutiny, Tether has reduced its claim to being a “stablecoin.”
It was revealed that Tether did not conduct normal audits, according to CFTC. Preliminary accounting examination showed Bitfinex shift $382 million into a bank account, creating the appearance that the company had the cash to back tether coins.
According to Rostin Behnam, interim CFTC chairman: “The fast increasing and rising digital assets industry needs honesty and openness.” For the sake of the CFTC’s jurisdictional markets, the CFTC will continue to take prompt action to expose false or misleading representations. Moreover, CFTC’s punishment of Tether further concerns the stability and function of Tether in the bitcoin ecosystem.
The New York attorney general fined Bitfinex and its affiliates $18.5 million and ordered them to stop trading in the state.
The Role Of Tether
Cryptocurrency exchanges rely heavily on Tether. According to the market cap, it is the sixth most valuable cryptocurrency, with tokens valued at more than $68 billion. It accounts for roughly half of the whole stablecoin market and is unquestionably the most popular stablecoin. Because of the status of Tether, which is reckoned as a stablecoin, it is used by several investors. One of the examples of this is sports betting. The main reason why so many people bet with usdt is that this digital currency is a stable one, so bettors don’t worry about its volatility and the way it may decrease in value while they bet on the matches with bookmakers. Because of its stability Tether allows investors to define their approximate profit.
Most significantly, Tether serves as a middleman between the fiat currency and the cryptocurrency market. In comparison to fiat money, Tether’s transaction costs are lower, and the procedure is quicker. For individuals who want to protect their cryptocurrency gains while still having the ability to convert them back into the currency of their choice, a tether is an excellent option.
According to George Monaghan, an analyst on GlobalData’s thematic research team, “cryptocurrencies are still more often utilized as “stores of value” than as a currency. As long as we’re using fiat to pay for goods and services, and investors purchase cryptocurrencies to increase their money reserves, we’ll continue to do so.”
Tether is centralized, unlike other cryptocurrencies. Instead of a decentralized mining process, Tether Limited mints or “prints” tokens.
The price of bitcoin has been linked to the production of tethers, according to certain research. If investors remove more USDT than Tether has in reserve, Tether would be unable to satisfy such demands. A chain reaction in the bitcoin market might ensue, according to some observers.
Tether has been fined in the past but insists it has since modified its operations. In spite of these issues, the corporation has been unable to shrug them off.
Chairman of the Securities and Exchange Commission Gary Gensler has urged for more control of cryptocurrency markets and characterized stablecoins as “behaving somewhat like poker chips at the casino.
Tether is one of a group of cryptocurrencies known as stablecoins, which are designed to keep its value stable, unlike other famous cryptocurrencies like Bitcoin and Ethereum, which have had price fluctuations of up to 300%. Instead of being utilized for speculative investments, it might be used for trade and as a kind of wealth storage.
In terms of stablecoins, Tether falls under the fiat-collateralized stablecoins group. These crypto coins are backed by fiat money such as a dollar, euro, or Japanese currency like the yen. Stablecoins that employ cryptocurrency reserves as collateral are known as crypto-collateralized stablecoins, whereas non-collateralized stablecoins do not. A non-collateralized stablecoin is one that doesn’t have any assets to back it up, but instead functions like a reserve bank to make sure there is always a enough supply of tokens to meet demand.
When compared to the U.S. dollar, it is worth exactly the same as the other currency. No assurance of redemption or exchange for real money is guaranteed by Tether Ltd. Tethers cannot be converted to US dollars in any way, shape or form at this time.
According to a survey by CryptoCompare, a worldwide cryptocurrency market data source, the bulk of BTC exchanged into fiat or stablecoins is traded via Tether. USDT accounted for 57% of all bitcoin trades in February 2021. The bitcoin industry still relies on Tether as a primary source of funding.
Tether Ltd., the business in charge of safeguarding fiat currency reserves, relaunched RealCoin as Tether in November 2014 after it was first introduced as Tether in July. It began trading in February of that year.
Other cryptocurrencies’ wild price swings may be avoided using Tether (USDT). Currency traders might lessen their exposure to a rapid decrease in cryptocurrency prices by converting their holdings to USDT. Tether is also significantly faster and cheaper than the US currency when it comes to exchanging BTC for Tether.