- Tether announced in a blog post it will be destroying 500 million USDT tokens
- Supposedly pegged to the U.S. dollar, Tether has never been independently audited
- Some experts fear that in the event tether collapses, it can have a devastating impact on the overall cryptocurrency market
In a blog post released Thursday, Tether announced it will be destroying 500 million USDT tokens from their treasury wallet. They are however leaving 466 million USDT tokens in their wallet as a preparatory measure for USDT issuances in the future.
Rocky Weeks for Tether
Tether has been facing different challenges the past weeks. The issues first started with Nobel Bank announcing it’s waiting for a new buyer and Tether and Bitfinex are no longer their clients. And since the community is unsure if Tether had the necessary funding to back its stablecoin, it lost its peg with the US dollar.
From that moment, tether has not been able to recover its $1 dollar price. Currently, it is being traded around $0.985 dollars. In the first week of October, Tether’s market capitalisation briefly fell by 23 percent.
Controversies Surrounding USDT
Tether was launched in 2015 and its creators claimed it is pegged to the U.S. dollar. The digital coins are issued by Tether Limited and is governed by the British Virgin Islands laws.
Tether currently has almost 2 billion coins in circulation, and that some fear the company does not have enough U.S. dollars to back all the digital coins. In January alone, Tether released 850 million new digital tokens.
Over the past few moths, the company has been increasing the number of coins in circulation. This coincided with cryptocurrency prices experiencing record highs, prompting critics to suggest there is ongoing price manipulation.
To back up the manipulation claims, an anonymous statistical analysis was posted online on the relationship between tether and bitcoin price. The conclusion: tether is created when bitcoin is falling.
The analysis further added, “Tether printing moves the market appreciably; 48.8 percent off BTC’s price rise in the period studied occurred in the two-hour periods following the arrival of 91 different tether grants to the Bitfinex wallet.”
Tether could crash the market
Thomas Glucksmann, head of APAC business development at Gatecoin stated that if a tether debacle unfolds, it will cause a devastating ripple effect across exchanges that have most of their volumes traded against the USD-backed cryptocurrency. He added “In such a scenario, we may see cryptocurrency prices retreat quite dramatically.”
The other possible scenario can be something equivalent to a bank run. This will occur if tether’s value goes to zero and people request their fiat money back. Tether then will no longer be able to prop the ‘stable’coin up.
Nicholas Weaver, a senior researcher at the International Computer Science Institute at Berkeley, California, explains how a bank run can occur:
“You could see a spike in prices in tether-only bitcoin exchanges. So, on those exchanges only you will see a run up in price compared to the bitcoin exchanges that actually work with actual money. So you would see a huge price diverge as people see that the only way they can turn tether into real money is to buy other cryptocurrency then move to another exchange. That is a bank run.”