\u201cTether is the biggest threat to all of crypto, it\u2019s going to collapse soon and take down the crypto world with it.\u201d At least that\u2019s what the critics want you to believe, but over the past few years Tether has become more and more successful, and today it accounts for over 80% of all stablecoin volume.<\/p>\n\n\n\n
Are the critics right or are they just spreading lies? After following this controversy for years and doing my deep research, I find myself disagreeing with the critics more and more. I believe that Tether is perfectly fine, and the doomsday scenarios will never happen. I realize this is a controversial position but I\u2019m going to prove my point by sharing the nature of the FUD, the motivation behind it, and why all the critics are wrong.<\/p>\n\n\n\n
But there are tons of new and interesting projects out there, why even bother talking about Tether? Well, Tether is arguably the most important project behind Bitcoin and Ethereum, certainly the most important stablecoin. Whether you just came into crypto a week ago or you\u2019ve been here for years, you\u2019ve likely come across Tether in some way, shape, or form. It is so intertwined with the crypto world that if something bad were to happen to it, things would be catastrophic. That\u2019s why any bad news about Tether quickly dominates the news cycle.<\/p>\n\n\n\n
What\u2019s interesting is that the attacks, criticisms, and FUD aren\u2019t just one-time occurrences. We see them pop up every year and it\u2019s usually accompanied by a crash in crypto prices. For that reason, I think it\u2019s worth setting the record straight once and for all.<\/p>\n\n\n\n
Let me quickly explain Tether and the criticisms against it. Tether (USDT) was released back in 2014 as Realcoin, and it was one of the earliest stable coins ever created. The company behind it is called Tether limited, and its goal was to create a coin that could represent the price of U.S. dollars on the blockchain. To mint USDT you\u2019d have to first send them USD and the company would mint the stablecoin for you. For the longest time, they claimed that every USDT was backed one to one by U.S. dollars, but that later turned out to be false.<\/p>\n\n\n\n
As Tether grew over the years, so did the accusations against it. In 2017, Wells Fargo decided to cut off its banking services to Tether, which made it really hard for them to move their money around, which caused the price of USDT to fall from one dollar down to 91 cents. There were major doubts that Tether had the backing required to support its stablecoin.<\/p>\n\n\n\n
Later that year the infamous paradise papers were leaked, out of the 13 million confidential documents, there was a tiny portion that confirmed the ties between Tether and Bitfinex, which was something they denied up until that point.<\/p>\n\n\n\n
In mid-2018 a team from the University of Texas published an extensive study that argued that Tether was used to manipulate the price of Bitcoin. In October of that year, Tether once again lost its peg, dropping as low as 85 cents on certain exchanges.<\/p>\n\n\n\n
In 2019, the New York attorney general\u2019s office filed a bombshell lawsuit against Tether, accusing them of fraud. As part of that process Tether\u2019s top lawyer came out and admitted that only 74% of USDT was backed by cash or cash equivalents at that time.<\/p>\n\n\n\n
In mid-2021 the department of justice announced that they were also investigating Tether but this time for bank fraud. And in 2022, news came out that some big hedge funds were shorting USDT. They believed that Tether had exposure to risky Chinese debt that was likely to default.<\/p>\n\n\n\n
Now, let\u2019s pause right here and take a step back. Do you see what I mean when I say there\u2019s never-ending FUD against Tether, and yet they\u2019re still alive and well? That makes me wonder, what\u2019s the motivation behind these attacks? Sure, some of them are just reporting the facts, but a lot of it is sensationalized and backed by unfounded rumors or speculation.<\/p>\n\n\n\n
To answer this motivation question, we have to look at the three types of people who benefit the most from spreading this FUD. First are your price manipulators who want to buy crypto at a lower price. Since Tether FUD has been very effective at moving markets, if you\u2019re a whale who wants to buy bitcoin at a discount, you could easily combine Tether FUD with your ability to crash the price of Bitcoin, to scare retail newbies into selling their Bitcoin to you at a lower price. Sadly, that is how wealth is transferred from naive retail investors to the more experienced whales.<\/p>\n\n\n\n
The second group of people who love Tether FUD is your general crypto critics. I\u2019m talking about the Peter Schiff and Nouriel Roubini of the world. They hate all of crypto and they want to see it fail, so whatever criticism sounds convincing, they will happily spread it as proof that crypto sucks.<\/p>\n\n\n\n
Third, you got your crypto influencers or other media entities that love to spread this FUD because ultimately it does sound scary, and we know how well fear drives clicks. However, if you watch their videos or read their articles, you\u2019ll find that they\u2019re mostly fluff and don\u2019t make a convincing argument.<\/p>\n\n\n\n
I used to be worried when I heard those dire warnings from the critics, but now I don\u2019t care. They\u2019ve been shouting grave warnings for years now and yet Tether is still alive and well. Yes, they did lose their pegs several times in the past, but they\u2019ve always been able to regain their peg while increasing usage and adoption.<\/p>\n\n\n\n
I think something called the lindy effect explains my perspective perfectly. It\u2019s the phenomenon where the longer something survives, the longer it is likely to last in the future. This applies to non-perishable themes like technology or an idea. If we look at Tether through this lens, we see that it\u2019s been battle-tested for eight years now, there\u2019s no reason to believe that it won\u2019t survive for years to come.<\/p>\n\n\n\n
Of course, this doesn\u2019t mean that something bad can\u2019t happen, after all, we might have just been lucky up to this point. Let\u2019s look at some specific criticisms against Tether to see how they hold up.<\/p>\n\n\n\n
Some of the top criticisms don\u2019t even make sense. For example, some people accuse Tether of printing staple coins out of thin air to pump up the price of Bitcoin. They look at the chart of USDT\u2019s circulating supply and match certain supply increases with Bitcoin price pumps and they\u2019re like \u201cLook! this is proof of manipulation!\u201d<\/p>\n\n\n\n
That is just so wrong, Tether mints new staple coins when there\u2019s demand from clients, and it makes perfect sense that a wave of demand comes as the price is going up. Sam Bankman-Fried himself said that FTX regularly mints USDT with actual dollars, there was even a study out of UC Berkeley that analyzed three years\u2019 worth of Tether data and found zero correlation between their minting activity and the price of Bitcoin. And finally, during bear markets we\u2019ve seen the circulating supply of Tether drop as demand decreases, and the team burns the USDT that has been redeemed for USD. Therefore, for all these reasons this particular argument never made any sense to me.<\/p>\n\n\n\n
On the other hand, some arguments make sense but they\u2019re getting weaker and weaker over time. For example, there\u2019s been a concern that Tether puts their USD collateral into risky financial instruments such as commercial paper, if something bad happens to those assets then it will leave a huge hole in their balance sheet, and they\u2019ll be unable to fulfill redemptions back to USD.<\/p>\n\n\n\n
However, the Tether team has heard these concerns and they\u2019ve taken steps to mitigate them. In May of this year, they had over 20 billion dollars in commercial paper assets, but they\u2019ve cut that down multiple times and the number will drop to 3.5 billion by the end of July, this criticism is quickly becoming a non-issue. We know they\u2019re telling the truth because they have to release quarterly transparency reports per their settlement with the New York attorney general\u2019s office. There\u2019s something else here that really boosts my confidence in Tether, it\u2019s the fact that they\u2019ve been subject to all this criticism and scrutiny over the years.<\/p>\n\n\n\n
This may sound counterintuitive, why would scrutiny be a positive thing? I think it\u2019s positive because of the incentives it provides. Think about it, the team behind Tether is fully doxxed and they keep a pretty public profile. Do they really want to ruin their cozy lives just to make some extra money by doing shady things with Tether? Or would it make more sense to be conservative with Tether, and still make good money without the risk of getting thrown in jail? What decision would you make if you were in their shoes? For me, I would definitely be on the side of caution.<\/p>\n\n\n\n
Now, some may say \u201cWait a minute, three arrows capital was also public and yet they did all that shady stuff.\u201d Sure, that is true. But the big difference here is that 3AC did most of their shady activity in the background, without any of us knowing about it, whereas Tether has been attacked and criticized non-stop for years. Perhaps they were doing some shady stuff in the past, but they\u2019ve had years to shore up their business practices and clean up their operation.<\/p>\n\n\n\n
Charlie Munger once said, \u201cShow me the incentive, and I\u2019ll show you the outcome.\u201d The incentive for the Tether team is to run a tight ship so that\u2019s exactly what I think they\u2019re doing.<\/p>\n\n\n\n
There\u2019s something else that makes this argument even stronger and that\u2019s Coinbase\u2019s decision to list Tether on their exchange back in early 2021. That was a bombshell announcement and honestly, it took me by surprise. Personally, I saw it as a massive vote of confidence.<\/p>\n\n\n\n
Coinbase had just gone public with an army of lawyers in tow. With all the crazy FUD surrounding Tether, do you think they\u2019d make such a controversial decision without doing a ton of due diligence? Of course not, I\u2019d even bet that they got to look at Tether\u2019s books before making their decision but under strict NDA of course.<\/p>\n\n\n\n
That being said, my faith in the stablecoin is at all-time highs right now and I\u2019m not worried about its present or future at all. But let\u2019s just say for the sake of argument that something bad does happen to Tether, I would still not be worried because I\u2019m pretty sure the largest crypto companies would bail them out. It\u2019s been reported that two-thirds of all USDT ever minted were done for Alameda Research and Cumberland. This is especially relevant because Alameda has strong ties to FTX while Cumberland has ties to Binance, both those exchange giants are very closely intertwined with Tether. They have massive war chests that could be used for a bailout if needed. <\/p>\n\n\n\n
All things considered; I am super confident about the fate of Tether. I do feel like I\u2019m sticking my neck out a little bit with this article, but I genuinely believe that my arguments are sound.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cTether is the biggest threat to all of crypto, it\u2019s going to collapse soon and take down the…\n","protected":false},"author":1,"featured_media":2325,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-2324","post","type-post","status-publish","format-standard","has-post-thumbnail","category-crypto","cs-entry","cs-video-wrap"],"jetpack_featured_media_url":"https:\/\/liweisu.com\/en\/wp-content\/uploads\/2022\/07\/is-tether-as-bad-as-some-people-say.jpg","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/posts\/2324","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/comments?post=2324"}],"version-history":[{"count":1,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/posts\/2324\/revisions"}],"predecessor-version":[{"id":2326,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/posts\/2324\/revisions\/2326"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/media\/2325"}],"wp:attachment":[{"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/media?parent=2324"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/categories?post=2324"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/liweisu.com\/en\/wp-json\/wp\/v2\/tags?post=2324"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}