Tether, the biggest stablecoin in terms of market capitalization, has disclosed some interesting information about its indemnity model. Tether till now has always asserted that its token supply of 2 billion dollars has a backing of real United States dollar reserves. But according to the recent reports, it appears there are other assets involved as well that support the stablecoin.
As per the official statement that goes on the website of Tether,
“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”).”
Sufficient Funds
As a stablecoin, Tether has a couple of primary responsibilities –
- To preserve the price uniformity with the United States Dollar
- To demonstrate that it actually has a backup of the US dollars
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However, since the last few years, the stablecoin’s audit practices have been unsatisfactory which has ultimately led people to question the company’s abilities to fulfil both the duties listed above. Moreover, the update that loans also partially justify Tether’s value has been aggravating the worry people have. In fact, there are many people who have started believing that the stablecoin has inadequate reserves. This also has to do with the company’s minimal efforts at being transparent. Although nothing has been proven yet, the company’s statement that it forms its value upon many more things, but real money, is definitely going to fuel the controversy.
Coincidentally, this news has broken only months after the declaration made by Bloomberg that said, Tether has sufficient reserves. One more investigation carried out independently came to a similar conclusion. However, both of these reports were not what we call a proper audit and post a series of doubts, there is practically zero way left that helps you win over the stablecoin’s critics.
What’s in-store for Future
Looking at the broader picture, experts do believe that Tether in all likelihood will continue to maintain its significant position in the future. Irrespective of its actual market capitalization value, Tether is undoubtedly the most prominent stablecoin present in the market. It was recently learnt that TRON was keen to integrate Tether on its platform whereas Tether too has implied its intent on more such integrations. So in spite of the ongoing controversy, it is highly improbable that things will mark the end for Tether. The incident, though, could trigger fluctuations in prices or even sell-offs but if we look at it, the stablecoin has bounced back from all the price slump that has come its way so far.
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What we must notice here is the fact that despite being a market dominant, Tether is being challenged by more transparent and less centralized stablecoins, such as USDCoin and TrueUSD. So if Tether ever loses its significance, there are plenty of competitors all set to claim its position.
