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Tether admits it’s not totally backed by US dollars; market shrugs

Remember when Tether insisted there was a dollar for every tether out there? Well, actually…

Tether

Tether tokens on real dollars (via Shutterstock).

Tether Watch

Controversial “stablecoin” Tether isn’t entirely tethered to U.S. dollar assets, according to a new update to the company’s website. A recent change to the site’s homepage 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 USD₮ is always valued by Tether at 1 USD.”

That’s a far cry from its previous claim, which read:

“Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.”

For the few readers who may not comprehend this difference:

  1. Tether isn’t backed by dollars (or euros) the way they used to advertise. Some of its assets may include “cash equivalents.” That’s accountingspeak for short-term instruments such as certificates of deposit but also notes, not only from stable governments but could even include those issued by companies. Which companies? Let’s not ask too many questions.
  2. “Other assets and receivables from loans made by Tether to third parties, which may include affiliated entities” means that if Tether lends money to, say, an entity such as its sister company Bitfinex, that would be counted as an asset backing its token. If it makes a loan to one of its executives and the principal and interest haven’t been paid back yet, those would count as assets backing tether (Seriously?)
  3. “Every tether is also 1-to-1 pegged to the dollar” solely because Tether claims it is, not because—as they once advertised—one tether token had an equivalent dollar in the bank.

What’s more, Tether also removed claims of being audited:

“The value of our reserves is published daily. The value of our reserves matches or exceeds the value of all tethers in circulation.”

Previously, they said:

“Our reserve holdings are published daily and subject to frequent professional audits. All tethers in circulation always match our reserves.”

A screen grab from Tether's old homepage (via @CasPiancy on Twitter).
A screen grab from Tether’s old homepage (via @CasPiancy on Twitter).

Thus now they’re not only NOT backed by U.S. dollars, they don’t even pretend that you can ever verify what’s backing their assets. Its price is solely because they say so. You know, as if by fiat.

And the market’s reaction was… well, it didn’t. The price of Tether, according to Kraken (one of the few places one can kinda sorta trade out of tethers for dollars) is above 99 cents as of publication time.

Bitcoin trades against other currencies. The big salmon-colored section is how much is done with Tether (via CryptoCompare)
Bitcoin trades against other currencies. The big salmon-colored section is how much is done with Tether (via CryptoCompare)

Data from CrytpoCompare (which is tough to entirely trust because it may or may not include wash trades, but nonetheless…) show that nearly 82 percent of all bitcoin trades are done against tether. That’s a lot of promises propping up the crypto market.

Lawrence Lewitinn, CFA is editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.

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