Reasons Why Cash-Backed Tether Faces Criticism In The Crypto Market

The USDT token of Tether is backed up by US Dollars. This cash-backed Tether implies that the stablecoin entity must consist of a reserve of funds in its holding that is equal to the USDT tokens that are presently in circulation. Let us have a look at some of the Tether news. 

However many criticisms have been thrown at the firm due to the fact of cash-backed Tether, and many cannot accept the fact that the Tether coins are now backed up by financial assets other than the real US dollars. 

A report provides a breakdown of Tether’s present Tether reserve. According to the report, the company has assets of $62.8 billion. Approximately $6.3 billion among those assets are real cash and bank deposits. This implies there is a 10% cash-backed Tether. 

This percentage is a significant rise from the May Assurance Report of Tether, which portrayed only 3% of their assets were cash. 

The present week’s report also reveals that USDT is backed by hefty cash equivalents which include Tether commercial papers, reverse purchase notes, certificates of deposits, and also treasury bills. Those assets, except the above mentioned bank deposits and a cash sum of $47.1 billion that makes more than half of the total assets of Tether. 

The remaining assets of Tether include corporate bonds, secure loans ($2.5 billion), funds and precious metals ($4.8 billion), and other investments that include digital tokens ($2.0 billion). 

The Stable Act By The US

In the upcoming few months, Tether might have to face more difficult scrutiny and criticism. In December 2020, the members of the US Congress laid a legislative proposal for the “Stable Act” which would need stablecoins like that of Tether to get a full license of banking and the idea of cash-backed Tether will not work anymore. According to an assistant law professor Rohan Grey who has been working on this act with US Congress said, 

“The idea here is to build on the lessons that came out of the 2008 financial crisis, about how to regulate shadow banking and shadow finance.”

He further said that, 

“The idea that (stablecoins are) part of the business of banking, and should be regulated as such, is something that is increasingly being acknowledged across the spectrum. The growing world of stablecoins arguably underpins the entire crypto community right now. If that collapses, the whole space could collapse.”

Tether Attracts Criticism: Conclusion

USDT has attracted criticism for a long time for not being able to provide Tether audits of all its cash holdings. It is not clear whether the reports will calm the critics or not as that will be more of an assurance opinion than a proper audit. 

Unlike other digital currencies, a complete independent audit of Tether cannot happen. Transactions that involve USDT can be easily tracked on the public ledger of varied blockchains, but it is not possible to manually verify the backing of each token manually. All that we hope is the percentage of cash-backed Tether will not increase in the future. 

Frequently Asked Questions On Cash-Backed Tether

1. What is USDT backed by?

According to the official website of Tether, Tether Limited is a fully owned subsidiary of Tether Holdings Limited. In May 2021, Tether updated a report showing that there were only 2.9% cash-backed Tether with over 65% that is backed by commercial paper. On June 25, 2021, Tether (USDT) had 64.25 billion in supply.

2. Is Tether backed by dollars?

Bitcoin, for example, increased to an all-time high of close to $65,000 in April and has since almost decreased to half in value. Tether was formulated to be pegged to the dollar. While other digital currencies often fluctuate in price, but Tether price is usually equal to $1.

3. Is USDT really backed by fiat?

Tether particularly belongs to the category of fiat-collateralized stablecoins. This implies that a fiat currency like the euro, the US dollar, or the yen, backs each digital coin that is in circulation. In February 2021, 57% of all bitcoin trading was carried out in USDT.

4. Will a Tether collapse?

As per a new report in an investigation by the U.S. The Justice Department is testing whether criminal charges should be filed against executives of stablecoin provider Tether.

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