Posted on: 27. March 2018

Tether Coin

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What is a Tether Coin?

Tether Coin is an unregulated cryptocurrency token issued on the Bitcoin blockchain via the Omni Layer protocol. Each unit of Tether is supported by a US dollar, which is held in reserve by Tether Limited and can be redeemed via the Tether platform.

The main objective is to facilitate transactions with an exchange rate linked to the US dollar in order to avoid governmental and regulatory interference. In December 2017, Tether ranked 31st in terms of highest global market capitalization for cryptocurrencies.

Its total market capitalization stood at $1.1 billion on December 21, 2017. It enjoys support from some of the most well-established cryptocurrency exchanges online.

 

Background

Tether Coin was first released in November 2015. The company itself was founded in Hong Kong and has offices in the United States.

Tether is closely linked to Bitfinex, which ranks as the third-largest cryptocurrency exchange in the world by volume. Tether Coin was initially based on the Bitcoin blockchain ecosystem but switched to the Litecoin blockchain model in June 2017.

Exchange Rate

Tether is linked to the United States dollar but acts as a currency board by holding a US dollar in reserve. A cryptocurrency sign is issued for each reserve dollar.

The exchange rate is 1 Tether coin to 1 US dollar. Tether tries to tie its value directly to the currency of the USA, which is physically held in reserve by Tether Limited.

Tether Coin can be stored as hard currency, issued as a means of exchange and has a fixed unit of account, much like traditional currencies.

Security & Liquidity

The Tether model keeps the Tether US dollar in reserve so that it can serve customer withdrawals on demand. Tether intends to make reserve account balances publicly available, but these balances have yet to be reviewed or audited.

In the event of a liquidity crisis, bankruptcy or official bans by governments, stock exchanges and counter-parties can exchange US dollars for Tether Coin.

Tether allows customers to conduct financial transactions in US dollars without using the actual flat currency, without intermediaries and without banks.

 

Tether is not a legal payment currency or a financial instrument. Ownership of Tether Coin does not offer any contractual rights, other legal claims or guarantees against losses.

Tether Limited is not a bank and does not hold any required reserves in the Federal Reserve. Tether tokens are not legal tender and are not covered by conventional deposit insurance.

Tether does not work in countries and regions that do not regulate cryptocurrencies. It is also not a legal payment currency and therefore tries to circumnavigate traditional state and regulatory controls.

It’s alleged that Tether Coin transactions actually violate banking supervisory standards, including anti-laundering standards demanded by most financial institutions.

Bitfinex

According to the leaked Paradise Papers, an offshore law firm helped Bitfinex operators incorporate Tether into the British Virgin Islands in 2014. Critics have raised questions about the relationship between Bitfinex and Tether.

One critic accused Bitfinex of removing coins for no reason. In September 2017, Bitfinex and Tether published an accounting document to convince critics that Tether is being financed by real investment.

However, according to the New York Times, an independent lawyer, Lewis Cohen, found that carefully drafted sections in that document miss the mark. There’s no actual proof that Tether Coins are supported by the dollar.

In any case, Bitfinex and Tether seem to bypass certain laws and there’s a long list of concerns regarding the latter. Alphaville warned that the document was not an audit and that “there is a presumption that the complete review of these documents and records has not taken place.

Nor do the documents determine whether the balances concerned are debited elsewhere. The author of the document from Friedman LLP itself begins with the statement:

“This information is for the sole purpose of supporting management (by Tether) and is for use only by management. It must not be used as the material on which another party can rely.”

31 million dollars worth of cryptocurrency was stolen from Tether in November 2017.

Tether Coin Tokens are issued by Tether Limited. The CEO is Jan Ludovicus van der Velde.

 

Bitfinex and Wells Fargo

Bitfinex held client assets with four Taiwanese banks: Hwatai Commercial Bank, KGI Bank, First Commercial Bank and Taishin Bank.

All outgoing transfers to customers in the US were processed by their respective banking partner Wells Fargo, who deposited funds into customer accounts on behalf of the Taiwanese banks.

On April 17, 2017, Bitfinex announced that all incoming cash deposits on the stock exchange would be blocked and rejected by Taiwanese banks the next day. They also announced that all USD deposits would be deactivated for the time being, as Wells Fargo had essentially cut off Bitfinex.

This left many customers without the ability to withdraw their money for some time.

Bitfinex filed a lawsuit against Wells Fargo and Tether signed the lawsuit. Bitfinex and Tether, however, later chose to drop the said lawsuit.

In conclusion

Tether is a cryptocurrency that represents real currencies in a blockchain market. The project was founded in November 2015 and has two token types, the USDT and EURT, created as analogues of the US dollar and the euro.

This cryptocurrency is closely linked to the Bitfinex exchange. Tether was initially based on the Bitcoin blockchain system, but in June 2017 it began the transition to Litecoin.

One Tether corresponds to one US dollar. The first version of Tether was released on the Bitcoin blockchain via the Omni protocol and there are currently over 1,169 million Tether on the network, as reported by CoinMarketCap.

Omni allows users to output digital assets in a similar manner to ERC-20 tokens on Ethereum. Before the foundation of Ethereum, Vitalik Buterin worked on the Omni project, although it was known as Mastercoin at the time.

 


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