Usually, cryptocurrency is understood as a digital decentralized currency that does not have a single issuer. However, in the process of the development of cryptoindustry, a completely new class of electronic coins, called steyblecoins, appeared.
Stablecoin is a special kind of fixed-value cryptocurrency. The developers were able to create in some way a replacement for Fiat, which provides quick, convenient and cheaper payments.
Now there are several "stable" coins, but Tether is a pioneer. The history of the development of this cryptocurrency is far from ideal, but very interesting, since its creators presented a completely new view on digital money. Therefore, it is definitely worth the attention.
History of creation
The coin was created in July 2014, under the name of Realcoin by Starbucks Vice President Stanley Hainsworth. Some time after the launch of the project, the cryptocurrency was added to the popular Bitfinex crypto-exchange. However, it was not in demand among the clients of the exchange.
Therefore, in July 2014, it was decided to carry out a complete rebranding, as a result of which Realcoin was renamed Tether. The management company and sole issuer of Tether is Tether Limited. The first unit in the Tether network was generated by 12 March 2015 of the year.
At the core of Tether is the idea of creating a token secured by real currencies. At the moment, there are already coins provided by US dollars (USDT), euros (EURT), and in the near future it is planned to add the Japanese yen (JPYT). One Tether is equal to one "fiatnoy" unit and according to the statements of the issuer, it is fully provided with a monetary reserve of the Tether platform. Due to this, this cryptocurrency is not subject to volatility like other cryptomonettes.
Most Tether coins are released on the Bitcoin blockchain via the Omni Layer protocol. But in February, 2018 of the year was the release of tokens on the Ethereum blockchain: 86 million EURT and 60,1 million USDT. Why did Tether Limited experiment with the release of tokens on Ethereum? According to the official report of the Ethfinex decentralized exchange (a branch of Bitfinex), the purpose of creating the Tether standard of ERC20 was to develop tokenized dollars and euros for performing exchange operations in the Ethereum network on Ethfinex (Ethfinex offers trading only tokens created on the basis of Ethereum). However, apparently, the experiment failed, therefore more Ethereum-based Tether tokens were not released.
Separate attention deserves the connection Tether Limited with the popular Bitfinex cryptocheck, which was the first to add the Tether token. Initially, companies did not disclose their connection. However, in 2017, the crypto community found out that Tether Limited and Bitfinex had the same owners due to a leak of documents called Paradise Papers.
Team
As mentioned above, the creator of the project is Stanley Hainsworth. There is no detailed information about the full Tether team. Only the names of the management team are known:
- JL Van Der Velde - CEO. He graduated from the Taiwan National Pedagogical University. In the past, he was Managing Director of Amos Ltd., CEO of Strategic Development and co-founder of Tuxia GmbH and CEO of PAG Asia Inc. Since January, 2013 has also been the CEO of the major Bitfinex cryptocurrency exchange.
- Giancarlo Devasini - Chief Financial Officer. He studied at the University of Milan, has a doctorate in medical sciences. Founder of Solo SpA, in which he was CEO until 2008. Since November, 2012 has taken over the post of CFO of Bitfinex.
- Stuart Hoegner - General Counsel. Studied at Carleton University with a degree in government and economics. He holds a PhD in Law from the University of Toronto. He is Managing Director at Gaming Counsel PC Previously served as CEO at Barrister & Solicitor and DXH Professional Corporation.
Technology
Architecture
Technically speaking, Tether consists of three levels, or layers:
1. The Tether transaction registry, implemented in the Bitcoin blockchain - The Tether blockchain is integrated into Bitcoin via the Omni protocol (former Masterchain).
- Omni Layer Protocol - allows you to add complex functions without making changes to the Bitcoin blockchain. Omni is responsible for the following actions:
- Creation and LiquidationA liquidation is a sale of cryptocurrencies, usually forced, as a result of an investor's inability to secure a minimum margin for their leveraged position. Notorious for their volatility in the market, cryptocurrencies can quickly and easily lead to liquidation, especially when investors lose their leveraged positions and their investment plunges into negative balance, requiring them to sell crypto assets when a position is forced out. This usually happens in cryptocurrency margin trading, when investors borrow money from a crypto exchange or broker to increase their funds or assets for trading. While leveraged trading positions can lead to higher potential profits, this is a very risky move that could lead to liquidation if the price of the asset drops sharply and you lose your initial margin or equity. If you do not have enough funds to continue trading and cannot meet the minimum margin requirements for your leveraged position, the exchange may automatically close your position, resulting in a permanent loss of funds from your initial margin. This liquidation loss can be partial or total, depending on the initial margin and the extent of the price drop. A partial liquidation occurs when a position is partially closed at an early stage in order to reduce the position and the investor's leverage, while a full liquidation occurs when almost all of the initial margin has decreased due to a price drop. To better illustrate the liquidation process in cryptocurrency margin trading, here is an example: Suppose you start with an initial margin of $100 and 10x leverage. This means that your total trading position is $1, of which $000 is borrowed from an exchange or broker. The amount of leverage corresponds to the size of your profit or loss from the position. With 10x leverage, a 5% increase in the price of an asset will give you 50% profit. The same goes for a 5% drop in the price of an asset, which will result in a loss of 50% of your initial margin. The formula for calculating profit or loss is as follows: Initial Margin × (% Price Change × Leverage) = Profit/Loss. Based on the above calculation, a 10% decrease in the price of an asset will result in a loss of 100% of your initial margin. Before you lose all of your initial margin, you can get a margin call when the liquidation threshold is reached so you can decide if you want to add more equity to your margin to keep your position open (or lose your initial margin entirely when the exchange or the broker will automatically liquidate your position). When you force-close a position, the exchange or broker may charge you a liquidation fee, but you can avoid this fee if you close the position before it is liquidated. Liquidations often occur when investors are tempted by higher leverage, which can potentially bring them greater profits, but do not consider the possibility of incurring large losses, which can also lead to liquidation. Therefore, it is very important to apply smart crypto trading strategies in order to avoid liquidations, whether starting with lower leverage or carefully monitoring margins and liquidation prices. Using a stop loss order is another way to limit your losses as the order will automatically close the position for investors when it hits the stop price to prevent further losses. Investors may also consider using exchange insurance funds to protect themselves from excessive losses. Tether tokens;
- Record transactions in Tether blockchain and display details of completed translations;
- Storage of tokens USDT, EURT, JPYT on the wallet Omni Wallet;
- Creating multi-signatures.
- Tether Limited is a level that is a direct management company. Responsible for the following functions:
- Providing a report on the stock of tokens stored in the reserve fund;
- Publication of the report on the results of the audit;
- Integration of the Tether token into cryptocurrency exchanges and wallets.
Principle of operation
All Tether tokens (USDT, EURT, JPYT) in their “life” go through five stages.
- A user who wishes to buy Tether coins will deposit Fiat to the account of Tether Limited.
- After crediting the money, Tether launches new coins, while the number of issued tokens exactly corresponds to the amount of fiat units credited to the account in the ratio 1: 1.
- Tokens are credited to the user's Tether account. He can dispose of them at his discretion: for example, exchange them for other cryptocurrencies.
- When a user wants to exchange tokens for fiat money, the reverse is done. The client sends the desired number of coins to the crypto account of Tether Limited.
- The issuer “burns” the received amount of tokens and credits fiat money to the user's bank account.
Consensus algorithm
Tether uses a unique network consensus algorithm that is not found in any other cryptocurrency - Proof-of-Reserves. The principle of this algorithm is that it compares the number of issued tokens USDT and EURT with the real reserves of euro and dollars in reserve accounts of Tether Limited. This process is due to the capabilities of the Omni protocol.
Due to the fact that this protocol assumes integration with the Bitcoin open blockchain, any user can verify the authenticity of the results through the Tether browser. This is how this ratio looks at the time of this writing (early November 2018):
It is also worth saying that the Proof-of-Reserves consensus algorithm does not involve mining (as with coins that work on PoW, for example, Bitcoin) or forging (when consensus is reached through PoSe.g. NEO).
Advantages and disadvantages
Tether is, in fact, not a cryptocurrency, but fiat money, converted into digital form. If you compare a token with other coins and fiatny money, it has several undeniable advantages:
- Almost zero volatility - unlike conventional cryptocurrencies, the cost of Tether is almost always equal to the current price of fiat currency, i.e. 1 USD = 1 USDT. The biggest deviation from the norm this year was $ 0,92 for USDT.
- The low cost of transfers and the speed of payments - unlike regular money, Tether allows you to receive a transaction within a few minutes after sending. In addition, transfers are completely free (subject to sending transactions between Omni Wallet wallets), while in banks, transfers for equivalent amounts will cost tens of thousands of dollars depending on the amount of payment.
- The use of technology Omni Layer - this protocol is one of the most reliable due to the storage of data in the bitcoin blockchain.
But despite the presence of these very weighty advantages, there are still more disadvantages:
- Lack of decentralization - the consensus algorithm does not imply Mining Tether, and the only issuer of this stablecoin is the management company. Therefore, there is no need to talk about decentralization.
- Exposure to inflation - due to the fact that Tether is pegged to the US dollar, it is just like the latter is subject to inflation and gradually depreciates.
- Constant scandals around the cryptocurrency - for the company Tether Limited is noticed the conduct of a very opaque activity. For example, 500 million USDT tokens have recently been burned without providing clear reasons for making such a decision. In addition, Tether does not disclose its real reserves and refuses to conduct an independent audit.
- Limited exchange for fiat - most cryptobirds offer to exchange USDT only for other cryptocurrencies, while a pair of USDT / USD from known platforms is added only to Kraken and Bittrex.
- The need for KYC verification - users must be tested by Know Your Customer if they want to link their account with a bank card to exchange USDT for real dollars.
- The decline in popularity due to the emergence of more responsible competitors - Tether is not the only stablecoin, now a number of other coins are actively strengthening their positions on the market, such as USD Coin (USDC), Gemini Dollar (GUSD), Paxos Standard (PAX), Trust token ( True USD).
Interesting
Cooperation
Tether acts exclusively as a means of payment, so various platforms (mostly cryptocurrency exchanges and exchangers) simply add a coin without entering into any cooperation agreements. But with some companies, Tether has an established partnership:
- FxOpen is a well-known forex broker who is known for his positive attitude to cryptocurrencies. Now, among other available methods, customers will be able to replenish the deposit with the help of USDT and EURT.
- Deltec Bank is a bank located in the Bahamas. In the framework of cooperation, the bank must become the guarantor of Tether “solvency”.
- Madoff and Associates is an auditing company that will conduct Tether fiat reserves audits.
Scandals
Tether is one of the most scandalous cryptocurrencies, which has a very ambiguous development history, like, for example, the Tezos coin, which we recently wrote about. At the very beginning of Tether's existence, members of the crypto community noticed that the management of both Bitfinex and Tether Limited consists of the same people. The companies did not comment on this fact, but the connection was obvious, since in addition to the same management team, Bitfinex was involved in all disputes related to Tether.
One of the most obvious evidence of Tether Limited’s close connection with Bitfinex is that as soon as another batch of new USDT-tokens is released, most of them end up on Bitfinex. In addition, scientists from the University of Texas during the experiment came to the conclusion that every time after adding a new portion of new Tether to Bitfinex and making mass purchases of Bitcoin for USDT, the price of Bitcoin grew rapidly. Those. Tether Limited together with Bitfinex manipulated the growth of Bitcoin.
The following proof of a close relationship is a recent case involving the burning of half a million Tether tokens. It all started with the fact that when the Noble Bank, a Puerto Rican bank that most likely served both companies, announced problems, Bitfinex abruptly stopped accepting fiat deposits and offered an alternative as the USDT. However, traders were not led to this trick and began to massively exchange Tether for popular cryptocurrencies. This caused the October XTUMN 15 of October 2018 to fall to $ 0,92. As a result, the USDT lost 1 $ billion in capitalization, and its cost was stabilized and returned to the 1 $ mark only after burning token 500 million.
The next and constant problem is the reluctance of the token management to work according to the rules of transparency and openness. Tether Limited is unlocked with all hands and feet from being independently audited. In June 2018, a kind of audit was conducted by the Freeh Sporkin & Sullivan (FSS) law firm, which allegedly confirmed that $ 2,5 billion was in the accounts of Tether Limited. However, as representatives of the FSS later said, this audit was not a full-fledged audit, since the USDT issuer did not provide documents on financial statements, but only showed information about the company's accounts.
Comparison with other stablecocks
Tether is the leading steelcoin, but this idea was supported by a number of other companies that issued their “stable” coins. Some of them, despite their “youth”, are much more successful and inspire more confidence, especially against the background of the constant scandals in which Tether is wrapped. The most popular type of steaklocks is coins tied to the US dollar.
Comparison of several popular “stable” cryptocurrencies is shown in the picture below:
Course and capitalization. Where can I buy
At the time of this writing (beginning of November 2018 of the year), the cost of one USDT coin is $ 0,999, and the capitalization is almost $ 1,8 billion. In the Coinmarketcap Tether rating, it takes the 8 rank.
The graph and capitalization of cryptocurrency since the beginning of 2018, looks like this:
Despite the fact that Tether (USDT) is a stablebcoin and its value must be strictly tied to the dollar, in reality, the price of this cryptocurrency directly depends on market demand. If you look at the chart of the USDT rate, then the deviation from the norm of one dollar was 1-20 cents up or down. In October, 2018, the capitalization also showed serious "jumps". So, if at the beginning of October it was almost $ 2,8 billion, by the end of October this figure dropped to $ 1,8 billion, i.e. over the month, capitalization has sagged more than 1.5 times.
Tether (USDT) is one of the most popular stebblokoinov. However, it is possible to buy it for Fiat not from the issuer company on a limited number of exchanges, from popular ones it is Bittrex and Kraken, to which a pair of USDT / USD is added. The rest of the well-known sites offer USDT exchange only for cryptocurrencies.
The official wallet for storing USDT and EURT tokens is the Omni Wallet. In addition, USDT has been added to the Ledger hardware wallet.
Results
Despite the fact that Tether is a very controversial token, at the moment it is the most popular and most sought after. This is in particular evidenced by the daily trading turnover. For example, USDT has almost $ 2,2 billion, while the still young but very promising stablecoin GUSD has only $ 2,1 million.
But the big problem with Tether is the lack of transparency and the reluctance of the leadership to "fix" in this direction. However, since the beginning of November 2018, Tether Limited entered into a cooperation agreement with Deltec Bank, which confirmed that Tether's accounts as of October 31, 2018 had $ 1 billion 831 million 322 thousand 838. According to the bank, the employees conducted a thorough review of the internal processes and documentation of Tether Limited. This is, of course, better than nothing, but such a check is not a full-fledged financial audit, which could be guaranteed to confirm the solvency of the Tether issuer.
Others steblekkoiny conduct more transparent and open activities and are ready for an independent audit. If Tether Limited does not reconsider its attitude towards this moment, then it is quite possible that in a short time another steyblecoin will take its “crown” place.