USDT - A Ticking Tether Time Bomb

I do not come to praise Tether, I've come to bury it. Metaphorically that is.

Tether or USDT is a cryptocurrency offered by the exchange Bitfinex and Tether, a company that issues the widely traded coin that is pegged to the U.S. dollar. Traders love USDT because exchange is nearly instant and is accepted at over 130 cryptocurrency exchanges. Without USDT, traders would wait up to four days for fiat currency wire transfers.

So, is USDT worth the 1 USD that it is pegged to? Well, we just don't know - Tether assures the crypto community that each Tether is backed by a greenback but so far there is little proof to that assertion.

The important question is: does this matter. After all, if we're willing to accept one USDT in exchange for another crypto asset, isn't the USDT worth something - by definition. Well, yes & no - for in that moment it is priced by a market. But in the long run the market may value USDT at zero.

The numbers: as of today 2.9 billion USD was traded across a circulating supply of 2.2 billion USDT. The supply of USDT has risen to 2.9 billion tokens.

The are a number of questions related to the USDT supply and it's long term viability as a fixed exchange asset. There is quite a bit of historical literature that details the problems associated with currencies pegged to a particular asset. I urge you to read them and consider what really is different today.

Since September 2017, the number of tethers in circulation has risen roughly five-fold, to 2.28 billion, from 450 million. In January 2018 Tether has released 850 million new tethers. This has been done without an audit and without the transparency expected - for example - we don't know who Tether's banking partner are.

A number if individuals have speculated that Bitfinex, the largest exchange based on USD trading volume, has been minting USDT, purchasing other cryptocurrencies like BTC and ETH in order to prop up prices.

On January 30, U.S. regulators subpoenaed Bitfinex with regard to USDT transactions.

Is USTD a clever ponzi scheme or a valid asset class that wrings out fiat exchange friction. We may know soon. At the moment USDT is worth a dollar as long as the 130 active crypto currency exchanges agree. But in a game of musical chairs one has to ask which exchange will find itself searching for a seat and in a race for liquidity.