INSUBCONTINENT EXCLUSIVE:
By Olga KharifWhat’s the world’s most widely used cryptocurrency? If you think it’s Bitcoin, which accounts for about 70% of all the
digital-asset world’s market value, you’re probably wrong.
While concrete figures on trading volumes are hard to come by in this often
murky corner of finance, data from CoinMarketCap.com show that the token with the highest daily and monthly trading volume is Tether, whose
market capitalization is more than 30 times smaller
Tether’s volume surpassed that of Bitcoin’s for the first time in April and has consistently exceeded it since early August at about $21
billion per day, the data provider says.
With Tether’s monthly trading volume about 18% higher than that of Bitcoin, it’s arguably the
most important coin in the crypto ecosystem
Tether’s also one of the main reasons why regulators regard cryptocurrencies with a wary eye, and have put the breaks on crypto
exchange-traded funds amid concern of market manipulation.
“If there is no Tether, we lose a massive amount of daily volume -- around $1
billion or more depending on the data source,” said Lex Sokolin, global financial technology co-head at ConsenSys, which offers blockchain
“Some of the concerning potential patters of trading in the market may start to fall away.”
Tether is the world’s most used
stablecoin, a category of tokens that seek to avoid price fluctuations, often through pegs or reserves
It’s also a pathway for most of the world’s active traders into the crypto market
In countries like China, where crypto exchanges are banned, people can pay cash over the counter to get Tethers with few questions asked,
From there, they can trade Tethers for Bitcoin and other cryptocurrencies, he 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,” said Jeremy Allaire, chief executive officer of Circle, which supports a rival stablecoin called USD Coin
“It’s a feature, not a problem.”
Tether, which is being sued by New York for allegedly commingling funds including reserves, says
using a know-your-customer form and approval process is required to issue and redeem the coin.
Asian traders account for about 70% of all
crypto trading volume, according to Allaire, and Tether was used in 40% and 80% of all transactions on two of the world’s top exchanges,
Binance and Huobi, respectively, Coin Metrics said earlier this year.
Many people don’t even know they use Tether, said Thaddeus Dryja, a
research scientist at the Massachusetts Institute of Technology
Because traditional financial institutions worry that they don’t sniff out criminals and money launderers well enough, most crypto
exchanges still don’t have bank accounts and can’t hold dollars on behalf of customers
So they use Tether as a substitute, Dryja said.
“I don’t think people actually trust Tether -- I think people use Tether without
realizing that they are using it, and instead think they have actual dollars in a bank account somewhere,” Dryja said
Some exchanges mislabel their pages, to convey the impression that customers are holding dollars instead of Tethers, he said.
The way Tether
is managed and governed makes it a black box
While Bitcoin belongs to no one, Tether is issued by a Hong Kong-based private company whose proprietors also own the Bitfinex crypto
The exact mechanism by which Tether’s supply is increased and decreased is unclear
Exactly how much of the supply is covered by fiat reserves is in question, too, as Tether is not independently audited
In April, Tether disclosed that 74% of the Tethers are covered by cash and short-term securities, while it previously said it had a 100%
reserve.
The disclosure was a part of an ongoing investigation into Tether by the New York Attorney General, which accused the companies
behind the coin of a coverup to hide the loss of $850 million of comingled client and corporate funds.
John Griffin, a finance professor at
the University of Texas at Austin, said that half of Bitcoin’s runup in 2017 was the result of market manipulation using Tether
Last year Bloomberg reported that the U.S
Justice Department is investigating Tether’s role in this market manipulation.
Convenience Versus Risk“Being controlled by centralized
parties defeats the entire original purpose of blockchain and decentralized cryptocurrencies,” Griffin said
“By avoiding government powers, stablecoins place trust instead in the hands of big tech companies, who have mixed accountability
So while the idea is great in theory, in practice it is risky, open to abuse, and plagued by similar problems to traditional fiat
currencies.”
On the other hand, because Tether is key to their growth, many crypto exchanges would likely be willing to bail it out if
needed, said Dan Raykhman, who is developing a platform for issuing digital assets and used to be head of trading technologies for Galaxy
Digital.
“There’s this implicit support from all these exchanges to help Tether stay afloat,” he said.
While dozens of stablecoins
have come out in the past year, many of them independently audited and regulated, Tether remains the favorite, by far.
“Tether has been
around since 2014 -- ancient antecedents in crypto --and has retained its value,” said Aaron Brown, an investor and a writer for Bloomberg
“I don’t say it’s perfect, but its convenience outweighs its risk for many people.”
