If you think Bitcoin is the World’s most used Crypto, you are wrong. It’s Tether.
Bitcoin accounts for 70% of the world’s market value of digital assets, but if you think it is the most used, you may be wrong.
While it is hard to find concrete figures for this financial sector, data on CoinMarketCap.com shows that the token with the highest monthly and daily trade volume is ‘Tether’. It is important to note that Tether’s market capitalization is 30 times smaller than Bitcoin. As per the data provider, the first time Tether’s trade volume surpassed Bitcoin’s was in April and has been on a consistent rise since early August at $21 billion per day.
With Tether exceeding Bitcoin’s monthly trading volume with approx. 18%, it is suffice to say that it is the most important coin in the cryptosphere. Tether is also considered the reason for wary eyes from investors and has resulted in pauses on crypto exchange funds amid concerns of market manipulation.
Global Financial Technology Head at ConsenSys, Lex Sokolin, said, “If there is no Tether, we lose a massive amount of daily volume — around $1 billion or more depending on the data source. Some of the concerning potential patterns of trading in the market may start to fall away.” ConsenSys is a Blockchain Technology Firm.
Tether is the most used stablecoin in the World. Stablecoins are a type of token that seeks to avoid price fluctuations, often through the use of pegs or reserves. It also creates a path for most of the world’s active traders. According to Sokolin, in countries like China, crypto exchanges are banned but people pay cash using OTC with a few questions asked.
Jeremy Allaire, CEO of Circle, also said, “For many people in Asia, they like the idea that it’s this offshore, opaque thing out of reach of the U.S. government. It’s a feature, not a problem.” Allaire is a supporter of rival stablecoin ‘USD Coin’.
Tether is being sued by New York for alleged commingling of funds including reserves. It says that a KYC form and approval process is required to issue and redeem the coin.
According to Jeremy, Asian account for 70% of the trade volume of all cryptos. Earlier this year, Coin Metrics said that Tether is used in 40% & 80% of all transactions on Binance and Huobi respectively, the world’s two largest exchanges.
A research scientist at the Massachusetts Institute of Technology, Thaddeus Dryja says that many people don’t even know they use Tether. Most Traditional Financial Institutes are always worried about not being able to sniff out money launderers and criminals, most crypto exchanges do not have any bank accounts. Since they can’t hold their customers money in a bank, they use Tether as a substitute.
He adds, “I don’t think people actually trust Tether — I think people use Tether without realizing that they are using it, and instead think they have actual dollars in a bank account somewhere. Some exchanges mislabel their pages, to convey the impression that customers are holding dollars instead of Tethers.
Tether’s management and governance makes it a Block Box. While Bitcoin does not belong to anyone, Tether is issued by a Hong Kong-based private company that also owns Bitfinex, a Crypto Exchange. There is no clarity of the exact mechanism used to increase or decrease Tether’s Supply. As Tether is not audited independently, how much fiat reserves cover its exact supply is also in question. While previously Tether said that it has a 100% reserve, in April, it said that it has 74% in cash and short term securities.
The disclosure came as a part of New York Attorney General’s ongoing investigation into Tether. New York Attorney General has accused Tether of covering up a loss of $850 million of commingled funds of corporate and clients.
A Finance Professor at the University of Texas, Sustin, John Griffin said that half of Bitcoin’s 2017 runup was a result of market manipulation by Tether.
Griffin said, “Being controlled by centralized parties defeats the entire original purpose of blockchain and decentralized cryptocurrencies. By avoiding government powers, stablecoins place trust instead in the hands of big tech companies, who have mixed accountability. So while the idea is great in theory, in practice it is risky, open to abuse, and plagued by similar problems to traditional fiat currencies.”
Dan Raykhman says that Tether is the key to their growth and they may be willing to bail it out if needed. Dan is currently working on the development of a platform for issue of digital assets. He used to work for Galaxy Digital as its Head of Trading Technologies.
Adding, he says, “There’s this implicit support from all these exchanges to help Tether stay afloat”.
Even with the entry of dozens of stablecoins in the market in a year, many of them audited and regulated, by far, Tether still remains a favorite.
Aaron Brown who is an investor and a writer at Bloomberg Opinion feels, “Tether has been around since 2014 — ancient antecedents in crypto –and has retained its value. I don’t say it’s perfect, but its convenience outweighs its risk for many people.”