Is Tether ‘The Central Bank of Crypto Trading’?

The fiat-backed stablecoin Tether plays an increasingly important (and controversial) role in crypto trading. Some even have called it "the central bank of crypto trading." Before we go any further, it is important to note that although many people incorrectly associate one tether with one U.S. dollar, in reality, the Tether platform does not support just the U.S. dollar. According to Tether:

"Tether initially supports US Dollars (USD), Euros (EUR), and soon Japanese Yen (JPY). Represented by ₮, tether platform currencies are denoted as USD₮, EUR₮, and JPY₮."

However, since the bulk the tether tokens in circulation are those backed by U.S. dollars rather than euros. At press time, according to Tether website's "Transparency" page, there ar roughly 2.5 billion of the former and 40 million of the latter. That's why it is not too surprising to see in discussions of Tether, people making statements such as "one tether generally equals one dollar."

Highlights From the WSJ Report

On Sunday (12 August 2018), Wall Street Journal (WSJ) presented a report on Tether, focusing on one of the main worries peple have, namely the fact that it is not very clear how much reserve holdings actually exist. In this article, we highlight some of the more interesting parts of this report:

  • "Tether, whose main selling point is its tie to the U.S. dollar, has grown dramatically over the past year—its daily trading volume of around $3 billion trails only bitcoin’s $5 billion."
  • "Tether has also become a “crypto bank” for cryptocurrency businesses that have trouble maintaining real-world banking relationships, providing liquidity and a place to park assets, according to a new study from blockchain research firm Chainalysis."
  • "But Tether has never produced an audit showing it has the purported reserves. The company that controls tether maintains it has the reserves, yet it has never named the banks it uses to hold these funds, nor said where they are based and regulated." (On its website, Tether says that its reserve holdings are "subject to frequent professional audits.")
  • "Last year, Tether hired accountants Friedman LLP, based in New York, to audit the reserves. The firm issued a preliminary report last year, but Tether says it released Friedman before a final audit was completed."
  • Leonardo Real, Tether’s chief compliance officer, told WSJ: “There’s nothing to hide here,” said Mr. Real. “It’s not three managers just cranking out money randomly in a dark basement somewhere.”
  • "In June, Tether hired law firm Freeh Sporkin & Sullivan LLP, co-founded by former Federal Bureau of Investigation Director Louis J. Freeh, which issued a report stating that it believed tether had full dollar backing."
  • "In theory, demand drives new issuance. Cryptocurrency exchange Bitfinex places orders for new tokens with Tether and wires dollars or euros to the company’s bank account, according to both companies. Tether sends the newly created tokens to Bitfinex, which distributes them to investors."
  • "Investors have little visibility into the process. Bitfinex shares ownership and management with Tether, and it is the only entity through which Tether issues tokens."
  • David Gerard, the author of the book “Attack of the 50 Foot Blockchain", told WSJ: "It’s sort of the central bank of crypto trading" even though “they don’t conduct themselves like you’d expect a responsible, sensible financial institution to do.”
  • "Tether’s market value has risen steadily over the past 18 months, to $2.4 billion from about $10 million at the beginning of 2017. That has made it a crucial link in the wider cryptocurrency market."
  • "Tether-based trading volume grew more than 15-fold between October 2017 and March 2018, Chainalysis found. U.S. dollar-based trading volume, meanwhile, tripled in that same period."
  • "tether has become a key source of liquidity. At times this summer, tether has represented as much as 80% of bitcoin trading volume, according to research site CryptoCompare. When the year began, it accounted for about 10% of bitcoin trading volume."
  • Ding’An Fei, a managing partner at Ledger Capital, a digital asset management firm based in Beijing, told WSJ: "There are a couple of forces in this market that if they failed, it would be catastrophic. Tether is one of them.”
  • "Chainalysis also found tether trading is increasingly concentrated among smaller, more speculative digital currencies, a sign it is being used as a tool of “pump-and-dump” schemes, in which traders hype an asset, causing its price to rise, before dumping it for a profit."

Latest News

According to OmniExplorer, $50 million worth of Tether tokens were issued on 11 August 2018.

On 26 July 2018, the U.S. Securities and Exchange Commission (SEC), in the 92-page document explaining the reasons for its second disapproval of the Winklevoss Bitcoin ETF, raised its concern that Tether might be responsible for some of the manipulation of the Bitcoin market, citing a research paper by Finance Professor John Griffin and doctoral student Amin Shams from University of Texas at Austin, which stated that "Tether seems to be used both to stabilize and manipulate Bitcoin prices."

Last month, during an interview with Ran Neu-Ner, CNBC's Crypto Trader, at Korea Blockchain Summit 2018, the CEO of Binance, Changpen "CZ" Zhao, was asked about the impact of a Tether crash on Binance. This is what CZ had to say:

“We have seen fiat currencies go down in history a lot. Probably more times than they have been in cryptocurrencies. So yes, the concern is always there and that’s also why we’re listing other stable coins as well, so we actively promote other stable coins including True USD and others... I haven’t personally seen their bank accounts, but from a logical point of view they have so many profits from their regular exchange business, they don’t need to do anything crazy about the Tethering. I think the reason they cannot release their bank account details is because if they release whichever bank they’re using, then the bank account gets shut down”

 

Featured Image Credit: Image Courtesy of Tether

Binance ‘Unknowingly’ Earns $775K via Staking, Set to Launch Huge XLM Giveaway

On Thursday (July 18), Binance, the world's largest cryptoasset exchange (by adjusted trading volume), made a rather interesting announcement: it had "unknowingly" earned 9.5 million Stellar Lumen (XLM) tokens through staking rewards, and it is going to give all of it away to all Binance users who maintain XLM balances between July 20 and September 1.

Binance explained via a blog post that in August 2018 the Binance team followed the advice of the Stellar Development Foundation "to change some parameters on both cold and hot wallets," which resulted in the exchange "unknowingly" earning staking rewards for its XLM holdings since 31 August 2018.

Then, this week, while the Binance team was considering the idea of adding support for XLM staking, it found out that Binance had earned around 9.5 million XLM tokens (each of which was worth approximately $0.08157 at the time). Binance notes that all "weekly staking rewards between then and now are documented on the blockchain." 

So, the team made two decisions:

  • add support for XLM staking to Binance.com; and
  • give away the aforementioned staking rewards to the Binance community (i.e. Binance users).

This is not the first time that Binance has added staking support to Binance.com. The exchange already "distributes NeoGas for NEO holders, Ontology Gas for Ontology holders, VTHO for VeChain holders, and BitTorrent tokens for TRON tokens."

Here is how this 9.5 million XLM giveaway is going to happen.

From July 20, Binance will support XLM staking. Between this date and September 1, Binance will take "daily snapshots" of XLM balances in Binance user accounts.

Then, on September 1, Binance will "tally average user XLM balances based on these snapshots," and process the distribution of staking rewards to these user accounts (that maintained XLM balances during the staking period). Furthermore, the roughly 9.5 million XLM tokens that Binance has unknowingly earned to date will be distributed as a bonus payment to all Binance users who jave maintained non-zero XLM balances since July 20. 

Binance says in its blog post that it estimates this "one-time distribution of 9,500,000 XLM shared proportionately among Binance users" to be worth "10 to 12 months of typical monthly rewards."

According to a support article published on July 18, here are the details of Binance's "Monthly XLM Staking Airdrop Program":

  • Binance will start these daily XLM balance snapshots at 00:00 (UTC) on 20 July 2019.
  • This is how Binance will calculate the XLM staking distribution:

XLM generated by each user = Total XLM staking rewards received by Binance * User XLM holdings ratio. User XLM holdings ratio = User XLM holdings / Total XLM staked by Binance.

  •  In order to qualify for XLM staking rewards, Binance users must have a balance of at least 10 XLM.
  • This initial distribution of XLM staking rewards will be calculated until 1 September 2019, "with the total amount distributed equal to the staking rewards accrued on holdings during the 43 day period."
  • These XLM staking rewards are calculated on a daily basis and are distributed monthly. 
  • XLM distrubutions will be "completed before the 5th of each month."

In other Binance news, another support article explained that Binance's Margin Trading platform has added support for two margin assets (EOS and LINK), three borrowable assets (BNB, EOS, and LINK), and three margin pairs (EOS/USDT, EOS/BTC, LINK/USDT, LINKBTC).

Binance's announcement about its 9.5 million XLM giveaway may have helped the XLM price. According to CryptoCompare, XLM is currently trading at $0.08914, up 7.96% in the past 24-hour period:

XLM-USD 24-Hour Chart on 18 July 2019.png

Featured Image Courtesy of Binance