hen you hear the word ‘cryptocurrency’ immediately you probably think of Ethereum, Litecoin, and at least Bitcoin. Bitcoin is almost synonymous with crypto the way Kleenex is synonymous with tissue. However, what if I told you that Bitcoin is not the most used cryptocurrency? Yes, despite being roughly 70 per cent of the market value of digital assets it would seem that Bitcoin plays second fiddle to Tether when it comes to trading volume.
According to data from CoinMarketCap.com, the token with the highest daily and monthly trading volume is Tether. April 2019 was the first time Bitcoin’s volume has been surpassed by Tether and since August of this year it has been consistently exceeding it.
As of September 30 the trading volume of Tether was roughly 18 per cent higher than that of Bitcoin and while it may sound strange to hear, it could arguably be the most important cryptocurrency in the market as a result.
Lex Sokolin, global financial technology co-head at ConsenSys, which offers blockchain technology told Bloomberg, “If there is no Tether, we lose a massive amount of daily volume—around $1 billon [USD] or more depending on the data source.”
So, What Exactly is Tether?
Tether, abbreviated as USDT, is a cryptocurrency with a value that is tied to the value of the U.S. Dollar. When a digital coin or token is tied to a fiat currencies value this is usually known as a stablecoin. Stablecoins for the record, can also be tied to (or pegged) to other cryptocurrencies or exchange-traded commodities and materials. As a fiat-based stablecoin Tether’s goal is to keep the cryptocurrency valuations stable and avoid the wide and various value swings that are seen with traditional cryptos such as Bitcoin and Ethereum.
The coins are issued by a company called Tether Ltd. that is governed by the laws of the British Virgin Islands according to the legal part of its website, though it is incorporated in Hong Kong. It should also be noted that Tether Ltd is owned by iFinex, which also operates the Bitfinex crypto exchange.
The precursor to Tether was original named “Realcoin,” and was announced in July 2014 by co-founders Brock Pierce, Reeve Collins, and Craig Sellars as a Santa Monica based startup. In November of 2014 the project was renamed to Tether in an announcement from then CEO Reeve Collins. In that same month beta versions for a US (dollar), European (euro), and Japanese (yen) Tether was announced as well, promising all tokens were backed 100% by their original currencies.
Controversial Early On
By January 2015, Bitfinex had enabled the trading of Tether on their exchange platform, Tether rose in usage slowly, but in 2017 things dramatically increased and Tether soon saw its first controversy. In June 2017 a study was published that pointed to Bitcoin’s meteoric rise of 2016 being the result of coordinated price manipulation.
University of Texas finance professor John Griffin, and a graduate student Amin Shams examined millions of transactions on cryptocurrency exchange Bitfinex. They found that Tether was used to purchase Bitcoin at key moments when it was declining which ended up, stabilizing and manipulating Bitcoin’s price.
In April 2019, the New York Attorney General Letitia James accused iFinex Inc. of covering up losses of almost $1 billion dollars of funds from investors. Bitfinex allegedly had taken a ballpark of $700 million of Tether’s cash reserves to hide the fact that funds were missing. That same month Tether also revealed that their cryptocurrency was 74 per cent backed by cash and securities.
Why do so many people use this controversial currency? Well, Jeremy Allaire, CEO of Circle said, “For many people in Asia, they like the idea that it’s this offshore, opaque thing out of reach of the U.S. government.” In Allaire’s words, “It’s a feature, not a problem.”
Asian traders account for about 70 per cent of all crypto trading volume, according to Allaire.
While scandalous at worst, at best, Tether is a solution for many who want to avoid the volatility of Bitcoin. However, with the track record of Tether to date, it is hard to say which currency is more volatile in the end.