In April, the digital currency Tether, despite having a market capitalization 30 times smaller than that of Bitcoin, reported a daily trading volume of roughly $21 billion, noticeably surpassing Bitcoin’s $17 billion, as outlined by CoinMarketCap.com. This significant shift has sparked a heightened sense of concern among regulatory bodies.
Tether’s trading volume on a monthly basis stands approximately 18% higher than Bitcoin’s. This pattern persists even though Bitcoin remains the most recognized within technological circles, including those at ConsenSys. Without Tether, potential anomalies of concern within the market could notably decrease.
Tether’s operations are shrouded in opaqueness for a number of reasons. Governed by a private Hong Kong-based company, which also oversees the Bitfinex exchange, Tether’s intricate operations contrast with Bitcoin’s transparent and decentralized architecture, leaving many questions unanswered.
There are doubts surrounding the mechanism for adjusting Tether’s supply and the extent of its backing by fiat reserves. Initially claiming that 100% of Tethers were backed by cash and short-term securities, as of April, Tether disclosed coverage at just 74%. The absence of independent audits further fuels these apprehensions.
Serving as one of the world’s favorite stablecoins, Tether is engineered to buffer against volatile price shifts using pegs or reserves. Its appeal lies in its ease of use for active traders and residents in regions where crypto trading faces restrictions. In China, for instance, investors may convert cash into Tether with few hurdles, leveraging it for Bitcoin or other digital currencies, according to Bloomberg.
Thaddeus Dryja, a scientist at Massachusetts Institute of Technology, remarks that Tether users often remain oblivious to their involvement with it. Many exchanges, lacking traditional financial services, do not maintain bank accounts for holding customer dollars, opting instead for Tether. He points out that these exchanges may mislead clients into believing they possess actual dollars rather than Tethers.
John Griffin, a professor from the University of Texas at Austin, highlighted that this issue prompted the U.S. Justice Department to scrutinize Tether’s role in this context, Bloomberg reports. Despite centralized control contravening the original blockchain vision, Griffin notes, stablecoins entrust authority to tech giants, bringing with it accountability issues akin to conventional fiat systems.
“Centralized command undermines the foundational blockchain principles and decentralized cryptocurrencies,” Griffin elaborates. “In bypassing governmental oversight, trust transfers to major tech firms with mixed track records, rendering stablecoins more vulnerable to malpractice and enduring flaws akin to traditional currencies.”
Reported by the Blockchain Transparency Institute, around 64% of Tether transactions have been implicated in fraudulent practices, manipulating cryptocurrency markets intentionally.