There are a handful of feuds in the cryptocurrency space that have been spawning arguments since time immemorial. Is XRP decentralized? Big blocks or small blocks? And is Tether actually backed by dollars in a bank account? The debates over this last question have started again as the spotlight is back on Tether after recent changes to its homepage.
Tether, definitely backed 1:1, Maybe Just Not with USD
A recent revision to Tether’s homepage has revised the claim that each Tether is backed by one US dollar. Their homepage now reads,
“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.”
Clearly this is a very different claim than the one that Tether has been making for years. What is a “cash equivalent?” or “other assets?” or “receivables from loans?” Does that mean that Tether is backed by an IOU and if the debtor defaults then Tether is no longer backed 1:1? What if these other assets are cryptocurrencies and their price fluctuates, an event virtually unheard of in crypto but which does occasionally happen. Will Tether no longer be backed 1:1?
This maddeningly vague statement is just the latest sign that Tether is the stable coin that the cryptocurrency world is used to, not the one it needs or deserves.
Why it’s Dangerous to Keep Your Money in Tether
Even though it has been operating for years, it is still extremely risky to keep money in Tether. They are an opaque company which makes vague promises and seems to have no oversight governing their business practices. If they change the entire premise of their coin so that 1 Tether ≠ 1 USD, who knows if they aren’t capable of taking the money and running. Or, as it’s known in the community, pulling an exit scam.
Even if that never materializes Tether could face a litany of other issues. Regulators could shut it down and freeze its assets. A bank run could cause it to collapse if it can’t return investors funds when they begin to turn in their Tether en masse. Or any number of other problems that cannot be anticipated but which could easily befall the stablecoin.
Alternatives to Tether
It used to be that crypto holders had to accept Tether’s business practices and arbitrary changes to policy because they were the only game in town. That’s no longer the case. Today there are more than half a dozen options available to someone who wants to insulate themselves from price movements. Two popular choices include,
DAI, a decentralized stable coin based on the Ethereum network and collateralized by Ether. It is completely transparent and anyone can check to see that.
TrueUSD, which uses the same business model as Tether, except that it regularly opens its books and proves it has enough money on deposit to cover the coins it has minted.
Whatever stable coin you choose to use, the best thing you can do for yourself and the health of the cryptocurrency space as a whole is to avoid Tether. Investing in crypto is risky enough as it is, there is no cause to make it even riskier.
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