Tether.to (originally called Realcoin) is an Isle of Man and Hong Kong based company that has been around since 2014. It belongs to the same parent company as Bitfinex. Tether tokens (USDT) are backed 1:1 with real USD in Tether's bank account. Or at least this is the case on paper - their fiat bank account is obviously not on a blockchain, so there's not very much we can do other than take their word for it. More recently, the company has also launched EURT tokens that are pegged to the Euro in value, backed by EUR in their fiat bank account.
USDT is traded in substantial volume on Poloniex and Bitfinex. It is also listed on Kraken, Liqui, Cryptopia, C-Cex, and the DEX via OpenLedger's gateway. A month ago, USDT's market cap was only $60M, but in the recent bear market it has ballooned to over a quarter billion dollars as traders flee to perceived safe havens in hopes of preserving their purchasing power.
In this modern age, we have all been effectively conditioned to click "I Accept" without reading when presented with Terms of Service - because ain't nobody got time to read all that. Terms of Service agreements are long, boring, and for the most part unintelligible to anyone that lacks a law degree. The amount of harm that can potentially come from failing to read them is generally quite limited, as most are presented by service providers that are not being trusted with substantial sums of money. Tether no doubt takes advantage with this fact. Buried in the middle of Tether's ToS is the following clause:
PURCHASE AND REDEMPTION OF TETHERS: The Site is an environment for the purchase and redemption of Tethers. Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency.
There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.
IANAL, but unless I'm completely misreading that, it explicitly states that they have no contractual obligation to redeem Tether tokens for fiat currency. I thought USDT is supposed to be safe because it is backed 1:1 by fiat currency? How is this different from getting the world comfortable with USD as a reserve currency because it is backed by physical gold only to end the Bretton Woods system by removing the underlying backing asset?
This is the clause that immediately follows:
NO CLASS PROCEEDINGS: You and we agree that any party hereto may bring claims against the other only on an individual basis and not as a plaintiff or class member in any purported class or representative action or proceeding. Unless the parties agree otherwise, any adjudicator of any claim—whether judicial or otherwise—may not consolidate or join more than one party’s claims and may not otherwise preside over any form of a consolidated, representative, or class proceeding. Any adjudicator of any claim may award relief, including monetary, injunctive, and declaratory relief, only in favor of the party seeking relief, and only to the extent necessary to provide relief necessitated by that party’s claim(s). Any relief awarded cannot affect other users of the Site or of any Services.
So by accepting their terms of service, you waive your right to participate in class action lawsuits against them, that would presumably result directly from their failure to exchange the tokens they issued for the underlying asset collateralizing them. If Tether goes tits up, claims must be brought on an individual basis, which in all likelihood would take far longer than the statute of limitations for seeking restitution. I like to imagine that one would be hardpressed to find a judge that would view this clause in the agreement as valid and enforce it accordingly, but I would not bet any money on it.
As is the case with most entities interfaced with the legacy financial system, Tether requires extensive KYC verification in order to convert between USDT and USD.
Unlike Tether, bitUSD/bitCNY/HERO and other SmartCoin assets issued by the DEX are permissionless and require no counterparty trust. They are backed with collateral (at a minimum of 1.75x their value) held in a smart contract enforced by an incorruptibly honest robot - the DEX itself. They maintain their pegs to the assets they derive value from by virtue of market forces and without the need for a central authority that enforces the peg. Even in times of great volatility in the price of BitShares (the underlying collateral backing all SmartCoins), the peg has been maintained.
Personally, I refuse to touch Tether with a 10-foot pole unless a substantial arbitrage opportunity presents itself that requires USDT to complete a triangle. I urge any readers that hold USDT to research alternatives and weigh any risks of holding Tether they may have previously been unaware of accordingly. If in the course of your research, you conclude that bitUSD is indeed superior to USDT, I encourage you to contact the exchanges you trade on requesting that they list it.
Edit: If you do not already have a BitShares wallet, you can register one here.
USDT and EURT are no different and in many ways worse than USD and EUR; you are trusting a central entity that may or may not be bankrupt at any time. You can bet your bottom dollar they do not have $250 million USD just sitting in a bank account. I'd be very, very surprised if there is $25 million in a bank account. This is the Federal Reserve all over again, they are literally printing money.
bitUSD and bitCNY are the way to go. But we've been saying this for what, 2 years now? Not sure when the world will wake up and find Bitshares.
The biggest difference between them is that the fiat currencies have (arguably) a form of backing - the IRS only accepts its cut of the income of US Citizens in USD, regardless what form it was earned in. Even if a US citizen generates all their income by bartering, they still have to pay their taxes in USD. AFAIK, the same applies to countries in the eurozone. The US government spends the revenue the IRS collects on goods and services purchased from the general economy - also in USD, so USD has both demand for it, because it is the instrument one must pay taxes in, as well as demand for goods in services paid for in USD backing it. The magnitude of this demand is so enormous that the US Government can exist in a perpetual state of insolvency, and yet USD remains relatively stable in price.
All USDT has backing it are implied promises and advertising - which if you read the fine print you will know is false. If Tether turned out to be insolvent, how quickly do you suppose the price of USDT would collapse?
I know we've known that bitCNY/bitUSD, and more recently HERO, are the way to go for price-stable cryptocurrencies. I posted this to cryptocurrency, rather than BitShares, because a lot of people have yet to discover this. What we really need though, is to try to get some exchanges (in addition to Bittrex which has a BTC:bitCNY pair) to list them. In a saner world, it's marketcap would be occupied by smartcoins.
Very good analysis! Basically it's a Scamcoin and the opposite of a stable store of value. In a sense it's the same as USD, backed by nothing but belief.
Thank you @ashaman for the informative article. Upvoted and resteemed.
I still have a couple of questions :
1 - If TUSD is unsafe as stated, how come most exchanges are using it? How come they trust it?
2 - Doesn't bitUSD fluctuate in value? Was the dex really able to keep its value equal to usd? Is there a historical chart prooving that?
3 - what happens if bitshares price collapses suddenly?
" All guarantees of SmartCoins are subject to the caveat that a SmartCoin can never be worth more than the collateral backing the least-collateralized short position. In normal market conditions, the value of the collateral is always more than sufficient, but, from time to time, markets can rapidly revalue the collateral. If this revaluation happens faster than the short positions can be forced to cover, then all SmartCoins are liquidated at the exchange rate of the least collateralized short position. This is similar to an insolvent bank converting its deposits to equity." In other words, all remaining collateral is automatically split up among the people who held the SmartCoins.
Personally, I believe the likelihood of such a disaster to be quite low: more specifically, I think that anything monumental enough to trigger a black swan event will leave us all with far greater concerns than what the purchasing power of our money is.
The other day, I believe for the first time in its history, the DEX went down unexpectedly due to a bug. There was a transaction created and added to the ledger that crashed all of the active witness nodes (block producers). If you look at the price chart, the red candles immediately following the downtime are considerably larger, but there is no way that selloff can be reliably attributed to the unplanned and unexpected maintenance of the network given that Bitcoin and almost every other cryptoasset show the exact same pattern on their price charts for the same exact time period. The speed with which people from all over the world rallied, identified a the problem, followed by its cause, and then created and deployed a fix was nothing short of amazing. I would consider it a bullish indicator more than anything else.
Thank you @ashaman. That was insightful.
this is why I bitUSD/HERO.
And you do your part (as any shareholder who would like to see the value of their shares rise should be doing) in spreading the word about it, which is awesome.
Great info, thanks!
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STOPThe only value USDT has for me is convenience. I can quickly jump in the market when there's a dip and buy. I wouldn't store my money in USDT long-term.
Understandable, but there are a lot of people who still view it as a safe haven to sit out the potential storm August 1st in, so I wrote this post to raise awareness of the potential dangers.