Tether has made a name for itself in the crowded cryptocurrency space by claiming that its so-called stablecoin is pegged to the US dollar because “every tether is always backed 1-to-1 by traditional currency held in our reserves,” as its website once said.
This is no longer the case. Tether updated its website as recently as mid-February to remove the reference to tethers being “backed 1-to-1 by traditional currency,” in other words by money held in bank accounts. For years, despite Tether’s assurances, the stablecoin has been regarded with suspicion by a community doubtful that tethers are really backed by billions of US dollars, and Euros.
Now, according to Tether’s website, Tether’s reserves “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.”
While other cryptocurrencies’ value is largely volatile and based on speculation, Tether’s stable dollar “peg” is dependent on people’s belief that the firm is solvent and backing its tokens with its reserves. A reserve made up of third party debt, miscellaneous assets, and easily convertible financial instruments, as well as cash, is a bit different from one made up solely of US dollars and Euros, as Tether previously claimed.
Because of this, Tether’s dollar peg is “no longer credible,” finance commentator Frances Coppola wrote at Forbes. At the time of writing, USDT was still trading at just over $1 USD, according to coinmarketcap.com.
The changes have also led observers to characterize Tether as engaging in a close equivalent to fractional reserve banking, a practice where only a portion of bank deposits are actually backed by the bank with traditional currency.
“Tethers remain completely stable and 100% backed, so Tether’s reserves always equal or exceed the number of issued Tethers,” Kasper Rasmussen, director of marketing for iFinex—the parent company of cryptocurrency exchange Bitfinex, which shares management with Tether, according to Reuters—wrote Motherboard in an email.
“The only change is that the composition of the assets that provide that backing includes a combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether,” Rasmussen wrote.
US commodities regulators subpoenaed both Bitfinex and Tether in December of 2017. The Justice Department is reportedly investigating both Tether and Bitfinex for price manipulation and is coordinating with regulators, Bloomberg reported in November.
The changes were made several weeks ago, Rasumussen said, and reflect Tether’s growth over the years. Rasmussen declined to comment on the current split of cash, debt, and financial instruments in its reserves, or if there is an upper limit on how much of Tether’s reserves can be non-cash.
The change doesn’t seem to have been rolled out smoothly across every part of Tether’s site. The “About Us” page notes that tokens are “backed by actual fiat currency assets, including USD and Euros. One Tether equals one underlying unit of the currency backing it, e.g., the U.S. Dollar, and is backed 100% by actual assets in the Tether platform’s reserve account.”
All of this is likely to be concerning to users who placed great importance on tethers being backed one-to-one by US dollars, but hey, you trust your bank, right? Right?
Get six of our favorite Motherboard stories every day by signing up for our newsletter.