Tether is under fire after the company appears to have excised claims that the stablecoin USDT was fully backed by the US Dollar. Stablecoins are typically backed by fiat currency, like the Dollar or Euro, which are held in a designated bank account. The company have updated their terms and conditions to suggest its USDT may not be 100% backed by traditional currencies, a claim they have repeatedly upheld.
The company website previously 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.”
The website 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 (collectively, ‘reserves’). Every tether is also 1-to-1 pegged to the dollar, so 1 USDT is always valued by Tether at 1 USD”.
Has Tether Morphed Into An Unregulated Fractional Reserve Bank?
In June 2018, a Washington-based law firm said in a report that the company had enough US Dollar reserves as of June 1 to back its virtual coins in circulation. However, the report was not a full audit.
People have continually questioned whether Tether actually had the cash reserves to back each USDT in circulation. A University of Texas research paper alleged that Tether’s token could have been used to manipulate bitcoin’s price during the bull run.
Tether does not have 100 percent fiat backing for its reserves, but instead has “cash equivalents”. Some of its reserves are held in the form of loans that it has made to third parties. Tether has been accused of becoming an unregulated fractional reserve bank, where only a portion of bank deposits are actually backed with cash on hand.
Kasper Rasmussen, director of marketing for iFinex, the parent company of Bitfinex, who share management with Tether, told Motherboard: “Tethers remain completely stable and 100% backed, so Tether’s reserves always equal or exceed the number of issued Tethers. The only change is that the composition of the assets that provide that backing includes a combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether”.