March 15, 2019, | AtoZ Markets - Tether, the company responsible for the development of the USDT stablecoin, has recently made an important update to its website. The update has the crypto-community humming with rumors the company may not be operating as advertised. After the changes in Tether terms and conditions, USDT is not USD backed.
USDT is not USD backed
The latest update from Tether appears to contradict Tether's claim that its USDT coin is backed 100% by the USD. Tether now says that, while it fully backs every token, USDT is not USD backed. Instead, Tether told its customers that its USDT coins are backed by "reserves" that includes traditional currency and cash equivalents and might include other assets and receivables from loans made by Tether to third parties.
A shift in terms suggests that the Tether company is backing some USDT with loans, in effect inflating the money supply without direct USD inflows.
Fractional reserve banking is a financial model in which banks keep only a fraction of their customers' money in reserve and use the rest to make loans and grant customers interest on their deposits. While this model works well for banks that are regulated by the Federal Reserve and produce interest, it may not work so well for a coin that promises stability. This is especially true if Tether is backing up its crypto with other assets such as oil or gold that are subject to daily price fluctuations.
Changes in Tether’s terms and conditions
The change now shows that the Tether (USDT) tokens are backed not just by dollar reserves, but by other assets too:
"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”)."
Before the change, the terms read:
"Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD."
In June 2018, the Bitfinex exchange platform was brought under scrutiny by researchers at the University of Texas at Austin, who claimed the platform was using the USDT to buy bitcoin when bitcoin prices were low to manipulate its value. Moreover, earlier that year, the value of the USDT coin, pegged to the US dollar has dropped below $1.00, which only added to the list of investor concerns.
Additionally, the stablecoin remains one of the most active digital assets, and Binance trading boosts its influence, as the exchange holds nearly 700 million USDT in various wallets. Also, the Tether treasury has acted conservatively, wiping up about 60 million USDT in the past couple of months.
However, USDT based liquidity has never been higher for both Bitcoin and altcoins. The share of the USDT/BTC pair covers nearly 80% of the leading coin’s trading activity. This means that without Tether the prices would not remain near their current levels. For altcoins, USDT also has a direct or indirect influence, with the leading assets receiving direct inflows and having their own USDT markets. The latest asset to get a USDT pairing on Binance was Monero.
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