Last week, the New York Attorney General (NYAG) launched an investigation into Tether, arguably the most controversial stablecoin in the crypto space, over an alleged $850 million fraud. Tether’s legal counsel have since admitted that the stablecoin is now only 74% backed by it’s asset reserves.
Tether (USDT) is a cryptocurrency that can be categorized under the term, ‘stablecoin’. A stablecoin is a token that attempts to exhibit stability, in this case 1:1 dollar parity with every Tether token backed by fiat-reserves. The primary use cases of a stablecoin is to allow users to access an appropriate unit of account, store of value, and medium of exchange for the turbulent crypto markets which can exhibit large swings in volatility. From its inception, Tether aggressively defended its first mover advantage – building scale, creating a global footprint, and establishing barriers to entry by amassing market share and ferociously protecting its foothold. At the start of 2018, Tether had an extremely strong hold on the stablecoin space, owning 94% of the market’s total supply.
Between this controversy and the emergence of alternatives, is Tether’s dominance over the stablecoin market coming to a close? Once an industry forms, it moves through a clear lifecycle — single start-up, fragmentation, and, finally, consolidation into larger economies. Cryptocurrency markets are at the fragmentation stages, and Tether could potentially be losing its grip.
Since Tether’s launch in 2015, the token has repeatedly featured in a series of news headlines calling into question the 1:1 dollar parity and reserves-backing. When pressed, time and time again, Tether’s leadership have refused to provide legitimate, independent audits of assets backing the token, showing a blatant lack of transparency.
Tether’s modus operandi has a familiar and unsettling feeling about it.