On November 19, 2017 the startup company Tether was hacked, having $30,950,000 USDT taken from its treasury wallet. One month after the hack, drama still surrounds the company.
Tether converts cash into digital currency, to anchor or tether the value to the price of national currencies like the US dollar, the Euro, and the Yen. USDT is a cryptocurrency token pegged to the US dollar, which Tether claims is “fully backed” by assets in the company’s reserve account.
USDT has become a popular token amongst cryptocurrency traders seeking a stable asset to hold profits in between trades. Tether also acts as a dollar substitute that can be moved between exchanges. The hack and recent events have investors seriously questioning the viability of Tether.
Tether Hack Allegations
Immediately following the hack, bizarre details began to emerge as well as allegations of corruption. Below are just a few of the headlines and allegations that circulated after the hack:
“The primary purpose of Tether is money laundering” perc360
“Under scrutiny has been the unclear relationship between Tether and the troubled British Virgin Islands-based bitcoin exchange Bitfinex — and long-standing allegations the exchange has been using the asset to engage in fraud and market manipulation. Complicating matters is that the two companies are said to share a common ownership, though details remain murky as to the exact nature of the connection.” coindesk.com
“Tether Theft Isn’t the First Controversy for Cryptocurrency Firm” Bloomberg
Others also alleged that Tether was not actually holding US dollars in reserve. One month on from the hack, Tether has released a statement that isn’t exactly making investors feel confident.
Tether Announces New Platform
Tether announced that they are in the process of creating a new platform, which will eventually replace the current wallets and addresses. The company also made a point to acknowledge investor fears about solvency by emphasizing a full balance sheet audit.
“Friedman LLP continues to work diligently toward a full balance sheet audit”.
Tether also claims it does in fact carry the fiat amounts it reports in its unnamed partner banks saying “Any suggestion to the contrary is uninformed and baseless,”.
This most recent statement was clearly a move by the company to reassure investors that their technology and business practices are sound.
However, there are also some things in the announcement that may make investors uneasy. For example, until the new platform launches, buying and selling will not be possible via tether.to.
Investors are being directed to exchanges if they want to sell USDT for USD or other cryptocurrencies. Tether is inviting exchanges and qualified corporate clients to contact them directly for arrangements. However, the company itself “cannot create or redeem tether for any U.S.-based customers at this time.” Yes, you read that right,they will not redeem tether for any US customers.
Tether also asserts that its “terms of service”, give the company the power to refuse service arbitrarily. They justify this action saying it is to prevent terrorism…and that if you are a “fully verified customer of Tether, your Tethers are freely redeemable.”
“we must and will take steps to prevent terrorists and other bad actors from trafficking in Tethers. Accordingly, where, for example, a redemption of Tether will violate applicable laws, that redemption will continue to be prohibited.”
Unfortunately for Tether, this most recent announcement isn’t exactly restoring their public image, which has been tarnished by suspicious behavior and the most recent hack. This presents a very real problem for cryptocurrency investors and exchanges.
Tether, for better or for worse, has become the defacto market pegged asset in the crypto world. It is becoming clear that the cryptocurrency community needs an alternative. Most importantly, investors and exchanges need a stable asset that is transparent and truly has its value backed 100%. No more questions…no more drama.
BitShares solves this problem using Market Pegged Assets called SmartCoins.
A SmartCoin is a cryptocurrency whose value is pegged to that of another asset, such as the US Dollar or gold. SmartCoins always have 100% or more of their value backed by the BitShares core currency, BTS, to which they can be converted at any time at an exchange rate set by a trustworthy price feed.
Barring extreme market conditions, SmartCoins are guaranteed to be worth at least their face value. The traditional approach to creating a “stable” asset is to accept deposits and issue a digital token as a claim receipt. Under this approach, the token is valued by the market as a dollar, discounted by any credit risk associated with the issuer. This can work well for transactions, but less well as a form of savings. History has repeatedly proven that issuers eventually go bankrupt due to fraud, incompetence, or government intervention.
The recent drama with Tether is a good lesson for the entire cryptocurrency community. We need a new approach to “stable” assets.
Transparency and trust will be the foundation for the new system. More and more exchanges will start to realize that SmartCoins like bitUSD are not only a viable alternative to USDT but they are significantly more capable to serve the needs of cryptocurrency investors and entrepreneurs.
Making assets like bitUSD even more appealing is the fact that they can be traded on a completely decentralized exchange.
The BitShares Decentralized Exchange DEX, puts the security of funds in the hands of the user not a third party. Not only can you use MPAs to avoid the risk of volatility, but you can also avoid the risk of leaving your funds on a centralized exchange that is vulnerable to attackers.
BitShares and the BitShares DEX were designed from the ground up to create a fair and trustless system for the new digital economy. Exchanges and traders may want to consider
bitUSD as an alternative for Tether. Investors are fed up with the drama, it is time for something better.
If you are a US citizen, the announcement was clear.
No USD for you!
It's a crazy scam that's for sure.
Thank You Michaelx! Excellent Writeup
I'd heard whispers about tether and hadn't researched it to date. You put the current situation in perspective with eloquence and detail. Greatly Appreciated! :D
GO BITSHARES!!!
I, for one, love the platform for what it is and all it is growing to become. The developers have done an amazing job.
Thank You BitShares Team!
Many people are still using USDT because they don't know about bitUSD. Thank you for your helpful post
Tether is a crazy story going on, and makes me very glad to be with BitShares indeed!
Good to see such a clear explanation between Tether and BitUSD. It seems like an obvious choice to use to use Bitshares and BitUSD but I can't understand why they are not just the standard go-to with alternatives like GDAX/Coinbase that are simply dropping the ball when needed most. Instead everyone is talking about the decentralised exchanges coming soon... Unless I'm missing something, isn't it already here at at bitshares.org?
YES! DEX is Already Here With Bitshares
Not only is it already here, it's gone through quite a bit of development since it began. Bitshares has a huge head start. :)