What is Tether?
Tether (USDT) is a cryptocurrency asset issued on the Litecoin blockchain via the Omni Layer Protocol. Each USDT is backed by a U.S dollar held in reserve by Tether Limited and can be redeemed through the Tether platform. Coins that serve the purpose of being a stable fiat currency substitute are called stablecoin.
The digital coins are issued by a company called Tether Limited that is governed by the laws of the British Virgin Islands. It is incorporated in Hong Kong. The company shares large parts of their management team with Hong Kong based cryptocurrency exchange Bitfinex. The idea is to have the price stability of the dollar combined with the operational ability of a cryptocurrency. Tether was created in 2015 and there is over $2.5 billion-worth of USDT in circulation today.
How does Tether work?
All Tether coins are issued on the Litecoin blockchain via the Omni Layer Protocol. For every Tether coin that is in circulation, there is one US dollar held in reserve by Tether Limited. Users can purchase coins directly from tether.to or from exchanges like Bitfinex. Tether currently supports US dollars, Euros and soon Japanese Yen.
Controversies surrounding Tether
Many experts have been very critical of Tether. The company behind Tether has control over all the coins that are in circulation. This gives Tether Limited too much power over the stablecoin and makes Tether less decentral. Furthermore, fears have been raised that Tether Limited doesn’t actually hold enough US dollar to back all the digital coins in circulation. If that is the case, Tether and the whole cryptocurrency market could see a huge crash. Another controverse is the relationship between Bitfinex and Tether. Many argue that both companies shouldn’t work together at all to make the cryptocurrency market as a whole less centralized.
The last controversie is a special one. It involves market manipulation caused by Tether. An anonymous statistical report claims that the printing of Tethers coincides with a dip in the price of Bitcoin and other cryptocurrencies. The University of Texas supports this conclusion. Moreover, they claim that Tether is used to provide price support and manipulate cryptocurrency prices.