Investigating the Top 50 Cryptocurrencies, Part 34/50: Tether

Tether is a cryptocurrency token that is strictly pegged to $1 USD, with each token being backed by a dollar of fiat currency held in reserve.

_{source: tether.io}
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The Tether token has been remarkably stable so far. For 2.5 years it has retained a value of $1.00 with only minor fluctuations. The worst price it has reached is $0.92, and it didn’t stay there for long.

There are some questions about the integrity of the team that runs Tether. There are supposed to be reserves that contain one dollar of fiat currency for every dollar of the cryptocurrency in circulation. However after a recent $30 million hack of the Tether Treasury and a rapid token supply increase, some users are not sure what to think.

About This Series + Disclaimer

This post is part of a new series where I investigate each of the top 50 coins by marketcap (based on coinmarketcap.com's rankings on October 11, 2017). My goal is to help steem’s userbase become the most knowledgable blockchain community in the world.

Disclaimer: I am not an investment expert and will not be providing investment advice. I will teach you about the top 50 coins, and you can do what you want with that info.

Pegged Cryptocurrencies

The recent extreme overvaluation of Steem Backed Dollars has left a lot of us wondering if it’s possible to maintain a solid peg for a currency.

One thing to keep in mind is that there are a lot more Tether in circulation than SBD. That means it would be way harder to pump Tether than it is to pump SBD. Another consideration is that Tether ONLY exists to be a pegged cryptocurrency. SBDs, in contrast, are a small part of the broad steem ecosystem.

The circulating supply of SBDs is 3,626,800. Tether’s circulating supply is 814,017,348 USDT. That means that there are 22.4x as many Tether as there are SBDs.

The value of Tether was rock solid at $1.00 for the first two years. It’s impressive to look at that market chart btw (it’s at the end of this post), such a strange chart compared to other tokens lol. The market cap has gone WAY up in the last eight months though and now the price is getting shakier.

As I’m writing this paragraph, it’s off by three cents:

That may not seem like much, but you should look for yourself at the chart. It was SO STABLE for the first two years, and it became visibly shakier after that.

The Controversy / Hack

I previously wrote about the Tether hack for Bitcoin Canada.

There are a lot of tether tokens held in a “treasury” account. This gives the Tether staff the ability to sell new tokens and buy tokens currently in circulation. Anybody can redeem their tether tokens for dollars at any time.

However, a recent hack resulted in 30 million tether tokens being pulled out of the Treasury by a third party. Tether jumped into action quickly and issued a hardfork that blacklisted the funds and made it impossible for anybody to use them or redeem them. They claimed that this would take care of the immediate problem by invalidating the gains earned for the hackers.

Quartz has this fascinating article which points out that Bitfinex and Tether both share some key staff members. There are suspicions that Tether may not have enough fiat currency in reserve to support the current $800,000,000+ of tokens in circulation.

Token Distribution

I can’t find much information about the initial Tether distribution. This token is unusual in that the initial distribution is not about sending out a lot of tokens to a wide number of people… it’s more about just making them available for buyers.

Many tokens start with a flashy announcement and a big ICO. People try to buy in early to get cheap tokens which may appreciate in value. None of that applies to Tether.

Tether started offering tokens from its treasury and users began to buy in at the start of April 2015. For a long time, there were only a few hundred thousand tokens in circulation - a far cry from today’s 800+ million tokens.

The Team

all photos are from https://tether.to/about-us/

Here are a few of the key members of the Tether team.

JR Van Der Velde, CEO

JR holds a high profile role as the CEO of Bitfinex along with being the CEO of Tether. In fact, I notice that Tether isn’t even listed on his LinkedIn profile, which is weird. Prior to Bitfinex/Tether, JR worked as CEO of PAG Asia Inc. and Co-founder of “Tuxia GmbH” where he helped to develop “Linux Solutions”.

Giancarlo Devasini, CFO

Giancarlo is also the CFO of Bitfinex (again, there’s a New York Times article talking about the bitfinex/tether connection). There is not much other information about his career history available online.

Phillip G. Potter, Chief Strategy Officer

Phillip is the Chief Strategy Officer for Bitfinex as well… notice a pattern? While I can’t find any detailed history on his career, I can find some evidence of him putting his foot in his mouth regarding insider trading on Bitfinex.

Note: I can’t say for sure if it’s a good/bad thing that all of Tether’s executives are also the execs of Bitfinex. Just reporting the facts here.

Market History

Are you ready to see one of the weirdest market charts ever?

This makes perfect sense because Tether is designed to stay at a value of $1 no matter what. It’s also funny as hell to look at.

I have no investment comments to make here since Tether isn’t designed for any speculation. Given all of the controversy surrounding this token right now, you may want to avoid storing any large amount of wealth in it.

Final Thoughts

I’m waiting to see how the Tether story plays out. Ever since the $30 million hack, there have been whispers and rumors about potential foul play happening at Tether.

Are these rumors legitimate? I have no idea. It’s unfortunate timing that this Tether article came up in my posting schedule right after the hack, because I am not qualified to comment on that controversy too much.

I know the basic story - $30 million disappeared from Tether’s treasury, Tether issued a hard fork to blacklist those tokens, and they claim to have it under control. But I don’t want to make any comments on the Bitfinex connection (all three top executives for Bitfinex and Tether are the same) or the recent large number of new tokens printed (more than 200 million in the last two weeks!!) - those aspects are beyond my knowledge.

If you are going to hold any Tether tokens, please, do your research.

With that caveat in place…

What do you think of Tether?