Tanzeel Akhtar is an independent British journalist whose work has been published in the Wall Street Journal, CNBC, FT Alphaville, Investing.com, Forbes, Euromoney and Citywire.
Often, when a cryptocurrency tanks, holders of a rival coin will tease them with “SFYL” – sorry for your loss.
But the entire industry needs to keep an eye on Tether’s USDT token, because if something were to happen to it, the result could be everyone’s loss.
That’s because the coin, also known as tether, has become a pivotal source of liquidity for the crypto markets. Without wanting to further spread fear, uncertainty and doubt (FUD) in a community that’s had more than its share, a collapse of tether would be extremely bad for these markets, causing a ripple effect and, in the worst case, conceivably toppling exchanges.
To be sure, so far, tether has lived up to its description as a so-called stablecoin, whose value is pegged to the U.S. dollar. Trading data shows tether has generally hovered around $1, occasionally dipping as low as $0.80 or jumping as high as $1.10.
But the company’s online critics have long alleged that Tether, which has close ties to the crypto exchange Bitfinex, has been issuing more USDT than it has dollars in the bank, in order to drive up the price of bitcoin.
That’s a problem for investors because tether is rare among cryptocurrencies in that it carries counterparty risk – in other words, the possibility one party to a contract may not fulfill its end of the bargain. In Tether’s case, the “obligation” is redeeming USDT tokens for dollars.
An audit by the firm Friedman LLP was supposed to prove that USDT was fully backed. But recently Tether abruptly announced that its its relationship with Friedman had ended. It remains unclear who dumped whom and why.
Now, with no audit forthcoming, the doubts are as pervasive as ever.