Thread by @OnrampAcademy

1/ Lets put this Tether FUD (fear, uncertainty, doubt) to bed. Time for an @onrampacademy thread. Today we’ll cover:

- About Tether
- Where Tether changed
- Tether controversy
- What happened recently

2/ About Tether

Tether (USDT) is a stablecoin, meaning that its sole purpose is to maintain a constant price of $1 for every USDT. This is useful because it allows individuals to transact over various blockchains without worrying about price volatility.

3/ But USDT is not just any stablecoin, it's the largest stablecoin in the world with a market cap of $78.26 billion, making it the fourth largest cryptoasset in the world.

4/ To maintain a constant price, stablecoins either use another asset to collateralize or use algorithms. If you want more details on stablecoins (or as we say, cryptodollars), check out our primer in Onramp Academy.

academy.onrampinvest.com/primers/crypto…

5/ In the case of USDT, it specifically belongs to the category of fiat-collateralized stablecoins. This means that a fiat currency like the US dollar, the euro, or the yen, backs each USDT in circulation.

6/ Where Tether Changed:

Tether is *supposed* to be fully collateralized, meaning 1 USDT, for $1 real world currency in reserves. The website once read: “Every tether is always backed 1-to-1, by traditional currency held in our reserves.”

web.archive.org/web/2019021905…

7/ However, we know that hasn’t always been the case. Back in 2019, it was revealed that Bitfinex (owned by the same people who run USDT) used $850m from Tether to cover a loss in the business.

coindesk.com/markets/2019/0…

8/ Since then, there have always been questions about whether USDT is truly fully collateralized and, if so, by what assets. In fact, it was revealed that Tether was only 74 percent backed.

coindesk.com/markets/2019/0…

9/ Tether’s website has been updated to read: “Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties”

10/ Tether settled its case with NY, was fined $18mm and also was required to provide quarterly reports.

11/ While that is helpful, we still do not know whose commercial paper Tether is holding, as they never disclosed that level of detail.

12/ Tether Controversy:

If you think that sounds sketchy, you're not alone; this has caused a lot of speculation in the market about what would happen to bitcoin and crypto should Tether collapse.

13/ Before we go on, it's worth pointing out that, while Tether is far from transparent, it is very unlikely that it would collapse. Tether is at least partially backed, and has functioning wires in and out of the bank that they use.

14/ Most of the fear regarding Tether can be traced back to an anonymously written blog post back in January 2021 that claimed bitcoin is extremely dependent on Tether and, should it break its peg, bitcoin could collapse.

15/ An important note about that post: the author used inaccurate data and misunderstood volume from inflows, which led to wildly inaccurate conclusions. This is especially problematic, as offshore exchanges are notorious for faking volume thus USDT appears larger than reality

16/ Since its release, the article has been debunked by a number of people.

bitcoinmagazine.com/markets/debunk…

17/ Unfortunately, the Wall Street Journal picked up on this blog post and ran a story without verifying the data for themselves. Fortunately, the industry has folks such as @nic__carter , among others, to set them straight.

medium.com/@nic__carter/a…

18/ USDT market cap is less than 10% of bitcoin’s today so, even if USDT collapsed, it wouldn’t have that large of an impact on bitcoin.

19/ Also, while USDT is the largest stablecoin because it has been around the longest, USDC and BUSD are eating into the market share of Tether. So, there are a number of viable alternatives for people to turn to.

coingape.com/stablecoins-us…

20/ While Tether does deploy a fractional reserve system, it’s worthy to note that banks today operate on a much less collateralized fractional reserve system.

21/ By law, banks are not required to hold more than 10% in reserves. That's WAY more risky than Tether’s reserve situation.

22/ A final concern is that previous Bitcoin bull markets were due to increased supply of Tether. However, There’s not a single shred of evidence that $20B of tether has any relationship to the rise of Bitcoin.

medium.com/@alexkruger/bi…

23/ What Happened Recently:

Yesterday, news surfaced that Tether wants the state Supreme Court to stop the attorney general’s office from sharing docs requested by CoinDesk. This once again sparked bearish sentiment around BTC and USDT.

24/ Advisors should be informed of Tether & the headlines that its stablecoin has & will continue to produce. By doing so, they can educate clients on what we know about Tether & ensure them that although BTC did fall 5% today, it most likely has little to do with the Tether FUD.

25/ For more timely updates like this one, follow us at @OnrampAcademy

To check out our crypto education resources for financial advisors, go to academy.onrampinvest.com

If you've learned something from this post, we encourage you to like and share it with your network!

Edit: this tweet can be viewed as a false equivalence and did not convey the point trying to be made, which is that with all known available information, Tether is backed by a significant amount of cash.

https://twitter.com/OnrampAcademy/status/1478916722069590025?s=20

Also, as of March 26, 2020, the required reserve ratios for depository institutions were dropped by the Federal Reserve to 0% for all deposit tiers.

Our apologies for not communicating this tweet clearly and accurately. We appreciate your engagement!