Tether < bitUSD

2 months ago
44 in blockchain

The Tether/Bitfinex controversy sheds light on how far the cryptocurrency world has come in the past couple years. For those who aren’t big traders or aware of how Tether works they issue Tether tokens and claim that each tether token (USDT) is backed up by one dollar they have in a bank account. This provides a useful tool for many cryptocurrency traders who can use the consistent unit of account that the U.S. Dollar provides. In practice, Tether tokens are not redeemed for dollars but rather traded as an intermediary between cryptocurrencies. 

However, in three years, the Panamanian domicile Tether has never issued a fully public audit of its account. This lack of transparency is exactly what the public blockchain protocol was intended to prevent. It’s applying banking 1.0 to a new paradigm. It’s like inventing the automobile and then having it propelled with a horse. Wait, humans actually did that..  

What’s the risk here? At worst, Tether has been ‘printing’ Tether tokens without sufficient collateral in dollars to support them (sounds familiar). If faith in Tether wanes considerably this could cause turmoil in the cryptocurrency markets, at least in the short term. For the time being, Tether is sticking to its guns and no damning evidence has come out to the public.  

This is a lesson in the risks of applying old institutional methods to a new paradigm. Tether is essentially functioning like a traditional bank by holding deposits and issuing bank notes. Moral hazard. The temptation will always be for Tether to issue more tokens than it has dollars on reserve. This outcome is less a condemnation of Tether than a condemnation of the system which allows this behavior – traditional banking.  

Enter bitUSD, a digital asset pegged to the purchasing power of the USD. Like Tether, one bitUSD is backed by collateral (a cryptocurrency – bitshares). Unlike Tether, this collateral has security and transparency baked in because all activity stays on a public blockchain. I routinely borrow bitUSD (and other currency derivatives) into the market and the price I pay is locking up > 1.75 x the value of the debt as collateral. E.g.   

Debt -- Collateral -- Ratio -- Call Price

Count on the cryptocurrency community paying attention to Tether over the next few weeks. But do yourself a favor and get yourself set up with a Bitshares account.      

Resources   

More background on Tether/Bitfinex - https://medium.com/@bradfrankel16/why-a-tether-audit-would-ruin-bitcoin-96da091cc154    

Bitshares referral link

Updated Resources

Charlie Lee (Developer of LiteCoin) speaks about this - https://twitter.com/SatoshiLite/status/936325730383695872

 

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  trending
57
  ·  2 months ago

makes no sense to use tether backed by thin air when you can use bitUSD or bitCNY and know that it os backed by 200% of its value.

·
44
  ·  2 months ago

@tonypeacock. I completely agree. There is risk in most every activity, but bitUSD is a much safer alternative than Tether right now.

54
  ·  2 months ago

upvoted followed and resteemed.....people just dont do enough research and trust too much....and have no common sense. there is no way bitfinex and tether could have that much cash for the 600 million tether out there...and the sad thing is guys are buying tether for stability but yet it even riskier believing in tether....

·
44
  ·  2 months ago

Exactly. A fraud scandal would bring a lot of negative attention to cryptocurrencies.

·
·
54
  ·  2 months ago

tether an bitconnect are cancers for crypto

·
·
·
44
  ·  2 months ago

Time for the crypto immune response to remove them.

39
  ·  last month

Thank you for this insight.

60
  ·  2 months ago

Congratulations @john-robert! You have completed some achievement on Steemit and have been rewarded with new badge(s) :

Award for the number of upvotes received

Click on any badge to view your own Board of Honor on SteemitBoard.
For more information about SteemitBoard, click here

If you no longer want to receive notifications, reply to this comment with the word STOP

By upvoting this notification, you can help all Steemit users. Learn how here!

55
  ·  2 months ago

SatoshiLite Charlie Lee [LTC] tweeted @ 30 Nov 2017 - 20:07 UTC

There's a fear going on that the recent price rise was helped by printing of USDT (Tether) that is not backed by US… twitter.com/i/web/status/9…

Disclaimer: I am just a bot trying to be helpful.
60
  ·  last month

Congratulations @john-robert! You have completed some achievement on Steemit and have been rewarded with new badge(s) :

Award for the total payout received

Click on any badge to view your own Board of Honor on SteemitBoard.
For more information about SteemitBoard, click here

If you no longer want to receive notifications, reply to this comment with the word STOP

By upvoting this notification, you can help all Steemit users. Learn how here!