Tether, the market-leading stablecoin in both market capitalization and controversy, made changes to its legal terms of service that indicate that USDT is not fully backed one-to-one by US dollar reserves. Instead, the new terms suggest that USDT is backed by other assets including loans made to third parties, calling into question the soundness of Tether’s reserves.
Tether and its associated exchange Bitfinex have been the subjects of immense controversy. Tether underpins billions of dollars worth of value in the cryptocurrency markets through its widely used stablecoin USDT—and if Tether is providing loans, the amount could be even higher.
Yet, despite the importance of Tether in the cryptocurrency markets, the company has refused to undergo audits or clearly disclose its banking relationships. The lack of transparency has companies doubting the company’s claims of USDT’s “one-to-one” backing with US dollars.
These concerns have culminated in the US Department of Justice (DOJ) having launched a criminal probe into the company. Allegedly, the DOJ is focused on potential Bitcoin price manipulation through the use of Tether on Bitfinex.
The company isn’t operating in isolation, either. There is strong competition from other more transparent alternatives. Users may end up voting with their dollars by using USD Coin (USDC), TrueUSD (TUSD), Paxos Standard Token (PAX), or even Dai (DAI) instead of USDT.
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