Dollar-Pegged USDT is Not Really Pegged by Dollar? Here’s How Tether Explains This

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by Wanguba Muriuki · 3 min read
Dollar-Pegged USDT is Not Really Pegged by Dollar? Here’s How Tether Explains This
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The crypt-community awakened with the revelation that the USDT is not really backed by the dollar and commentators allege that it could in future pull an exit scam stunt.

Several feuds in the cryptocurrency world have raised arguments since time immemorial. The most recent is about Tether. The largest stablecoin in the entire crypto ecosystem recently updated their official website to explain how their reserves work. In the past, the company had purported that 1 USDT was backed by 1USD in reserves.

However, that allegation was quietly changed to read this way on their site:

“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”).”

This update made the crypto-community to buzz with rumors of the company not operating as advertised. The ‘quiet’ update, noticed a keen-eyed redditor, seems contradictory to Tether’s claim that the US Dollars wholly support the USDT coins. Tether now explains that although it fully backs all USDT tokens, they may not always get the US dollars’ backing.

Nevertheless, Tether’s previous terms as shown in the archives of mid-February indicate full fiat support:

“Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD”

Recent reports show that Tether has endured endless questions of whether it has adequate reserves to back its 1.9 billion USDT in circulation. As we reported in mid-December, Bloomberg discovered that had sufficient funds to back its USDT supply at the time.

Cons of Tether

Although Tether has operated for years, it is still extremely risky to keep money in it. This company is opaque and it also makes vague promises. Moreover, no definite oversight governs their business practices. If they can ‘quietly’ change the whole premise of their coin, they may also take the money and run. Since they changed so that 1 Tether ≠ 1 USD, they can pull an exit scam too.

Even if they never pull an exit stunt, the company could face a plethora of other issues. Regulators may also shut it down and freeze its assets. Also, a bank run could destroy it if investors turn in their Tether en masse and the company fails to return their funds.

Growth Strategy

Despite the dark clouds looming above Tether, the company is forming partnerships to foster its long-term growth. Last November, its new bank partner announced that Tether had almost $50 million more in reserves compared to the total USDT in circulation at the time in a ratio of 1:1.

Its most recent partnership features TRON. We published earlier that Tether and TRON have decided to collaborate to launch a new version of USDT tokens. They are planning to launch USDT to the TRON network by Q2 2019. That will let users to easily transact using decentralized applications (dApps) and protocols based on the TRON blockchain.

Tether Alternatives

In the past, users had to accept Tether’s practices and arbitrary policy changes since they were the monopoly. That has now changed. Currently, there are at least six options available to customers who prefer insulation from price movements. The popular choices include DAI and TrueUSD.

DAI is a decentralized stable coin that thrives on the Ethereum network. It is completely transparent and collateralized by Ether. TrueUSD uses a similar business model to Tether although it opens its books regularly. Furthermore, it proves that it has enough money on deposit to cover all its coins currently in circulation.

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