Cryptocurrency prices are collapsing, with stablecoin Tether losing all of its value in a few days, and a new crypto bank halting withdrawals leaving investors in financial ruins, and for the time being, the cryptocurrency industry is grappling with a bleak future because the worst may not have happened. come after.

Writer David Yaffe Bellani, in a report published by the American New York Times, says that concern is growing about another potential vulnerability in the crypto market caused by Tether, which is an essential part of cryptocurrency trading around the world.

Tether has been one of the most scrutinized companies in the field and is currently facing mounting pressure from regulators, investors, economists and growing legions of skeptics arguing that its collapse could cause an even bigger crash in the cryptocurrency market.

According to Hilary Allen, a financial expert at American University, “Tether is really the lifeblood of the cryptocurrency ecosystem, and if it collapses, the entire interface will fall.”

Is it a stable currency?

The author explains that Tether is the dominant source of stablecoins, a type of cryptocurrency tied to a fixed asset such as the US dollar. Backed by large reserves of funds or other financial engineering, this consistency allows cryptocurrency traders to conduct secure, predictable transactions without relying on banks or other intermediaries.

Tether is currently trading at less than a dollar at $0.999

Tether claims that its stablecoin is backed by cash and other traditional assets, which makes its reserves essential to the health of the crypto market. Associated with unsecured corporate debt known as commercial paper.

These financial instruments are considered more risky and difficult to convert quickly into cash, especially during financial turmoil, and in 2021, the New York attorney general imposed a fine of $18.5 million on Tether for lying about its reserves.

Critics say the company's business mechanism is like a bank that lacks good regulation, and an economic downturn - in the worst case scenario - may lead to traders rushing to exchange their cryptocurrencies for dollars only to discover that Tether cannot meet these demands, and investors may lose billions of dollars, forcing them to sell Their other crypto assets, which will cause a panic may move to non-crypto markets.

This is the scenario that Tether experienced last month. As the value of cryptocurrencies plummeted, many investors asked to exchange their Tethers for dollars, forcing the company to pay about one-eighth of its reserves ($10 billion) over the course of a week and a half, on crypto exchanges. The value of the Tether coin fluctuated briefly.

The week before last, crypto bank Salsys Network announced that it would stop withdrawals causing cryptocurrency prices to crash again, and according to Bloomberg, Tether invested in this bank in 2020 and lent it about $1 billion in Tether, in return, the company said last week He no longer associates it with Salces but a small investment.

However, as the market faltered, investors pulled about $1.6 billion from Tether.

Last month, a senior US banking official called for new rules to be established to control Tether and its competitors, noting that the collapse of the Terra coin had highlighted the risks of poorly regulated stablecoins.

Some day traders are choosing to invest their money in alternative stablecoins, amid fears that the next crash may test whether Tether has sufficient reserves.

Tether is a type of cryptocurrency linked to a fixed asset such as the US dollar (Reuters)

Founded Date

According to crypto standards that usually go beyond imagination, Tether has a unique history. The company was founded in 2014 by Brock Pierce, a crypto evangelist who as a child starred in the Mighty Dix movies, and later turned over to management by Pierce and his partner, Reeve Collins. To a former plastic surgeon named Giancarlo Devasini, who stored some of Tether's assets in a bank in the Bahamas.

Tether has grown rapidly. Last year, it issued nearly 50 billion stablecoins, more than 3 times the supply of coins worldwide, and has about 50 employees in Europe, Asia and Latin America.

The LinkedIn profile indicates that its CEO, JL van der Velde, is a Dutch businessman based in Hong Kong;

But the company has refused to confirm his location, and Paulo Arduino, the company's chief technology officer, is the public face of Tether.

The writer adds that Tether has at times insisted that its stablecoins are fully backed by the US dollar, but last year, Leticia James, the New York state attorney general, called these allegations a “lie.”

A few years ago, a cryptocurrency exchange subsidiary of Tether lost $850 million in a failed trade deal, and to cover the losses, crypto exchange Bitfinex borrowed from Tether's reserves, leaving the stablecoin partially lacking full support, according to an investigation by James. Tether agreed to a settlement with the New York attorney general to pay a fine of $18.5 million without admitting wrongdoing.

Tether reserves

Last October, the Commodity Futures Trading Commission found that over the 26 months between 2016 and 2018, Tether had only had enough reserves in its accounts for a quarter of that period, so the company had to pay a $41 million fine. Since the settlement in New York, Tether has been releasing periodic statements detailing its reserves, but that hasn't completely dispelled the doubts surrounding it.

Last month, Tether revealed that about a quarter of its reserves are made up of commercial paper, which has fallen by $4 billion since last February. Meanwhile, Tether's dealings with money market funds that can invest in commercial paper have increased.

Tether also revealed that $5 billion of its reserves were restricted to "other investments," including cryptocurrencies, and according to a Tether spokeswoman, the company's commercial paper portfolio "will gradually decrease to zero without incurring any losses."

The writer stresses that Tether is by far the most popular stablecoin, but over the past month, the number of Tether coins in circulation has fallen by more than 7%, while the trading of USDCoin, a stablecoin that is supposedly fully backed by cash and US Treasuries, increased by 4 % Approximately.

Tether concerns reached Washington when Treasury Secretary Janet Yellen spoke to Congress last month noting the fluctuating dollar value of Tether and calling for greater regulation of stablecoins. ".

In this regard, Arduino said that Tether was eager to work with regulators to establish a global framework that would regulate the reserves disclosures that stablecoin issuers must provide, but Tether opposed more aggressive proposals that would have subject it to regulatory requirements such as those of conventional banks.