What started as a notable solution to the highly volatile nature of cryptocurrency markets has since turned into a never-ending scandal. Tether and its USDT token was launched as a means to protect cryptocurrency holdings against wild market swings. In doing so, the USDT token is theoretically pegged to the dollar and thus, bills itself as a cryptocurrency store of value.
At the time of writing, the USDT token represents $2.8 billion in client funds, all of which, reportedly, is backed by real-world dollars.
However, the general consensus in the blockchain space is that things aren’t quite what they seem.
Tether: How many more scandals will we see?
In March 2019 it was reported that Tether updated their terms and conditions without making the amendment public. If a traditional PLC did the same thing, not only would there be an investor, media and governmental uproar, but the company would likely face serious regulatory sanctions.
The aforementioned Tether update states that reserves "may include assets other than fiat currency". In layman’s terms, this means that the USDT is potentially not worth the cryptographic paper it's written on, insofar that Tether doesn’t actually hold enough reserves to cover its circulating supply.
If you thought that things couldn't get any worse for the beleaguered project, news has recently surfaced that leading exchange Bitfinex used $850 million worth of USDT tokens to covers its losses. Once again, in the corporate world, such a non-disclosure would result in both institutional and personal fines, potentially worse.
The murky relationship between Bitfinex and Tether is nothing new, as both entities appear to be operated by the same company - British Virgin Islands-registered iFinex Inc.
So where does this leave a cryptocurrency industry that is in dire need of a true store of value that has the capacity to protect personal wealth from the threats of volatility, inflation and market downturns?
Ultimately, the most pertinent characteristic that a legitimate stablecoin must yield is an ongoing audit by a reputable third party entity. Anything less and investors should tread with extreme caution.
Stablecoins are here to stay - but a third-party audit is paramount
One such example of a notable stablecoin is that of TrueUSD (TUSD). Much like its USDT counterpart, TUSD claims to be backed 100% by real-world dollars. However, the key difference between the two projects is that TrueUSD has already had its reserves verified and validated by third-party auditors.
Cohen & Company Accounting Firm - the entity behind the audit, concluded that the amount of dollars held in reserve by TrueUSD surpasses the amount of TUSD tokens in circulation.
An additional project that appears to be making headway in the stablecoin arena is that of diamDEXX, DIAM. Unlike the aforementioned concept of both TrueUSD and Tether, diamDEXX instead offers the option to purchase a stablecoin that is backed fully by diamonds, within its platform.
Diamonds have a long-standing history as a means to store value, protect wealth, and shield against market fluctuations, which makes it an ideal reserve against both the cryptocurrency and fiat-money arenas.
In order to retain the integrity of the DIAM tokens, reserves are fully audited by IDEX (International Diamond Exchange) - a reputable third-party diamond exchange with an established history that spans almost two decades.
CEO of the diamDEXX project - Jeremy Dahan, explained: “It's become a common occurrence to see investors disappointed in the crypto world. Nowadays, Tether has gone so far to lose its stable value that people are starting to speculate on its price, such as they do with other currencies. Remember, USDT is supposed to be a store of value.”
Dahan continued by adding that “In my opinion, investors should openly demand a 3rd-party auditor to intervene and vouch for the funds at all times. This would, at least in principle, avoid scandals such as an $850 million 'discrepancy'”.
The future of stablecoins
Ultimately, it remains to be seen how long Tether can hold on to its status as the de-facto stablecoin. The only real surprise is that the project has been able to hold on to its crown for so long.
It is safe to say that stablecoins will play a significant role in the future of cryptocurrencies and blockchain technology. The key takeaway is that the space must operate in the most transparent of manners. At an absolute minimum, this must involve an external third-party audit of stablecoin reserves by a reputable auditor.