There is an elephant in the room, and the world of cryptocurrency isn’t talking about it enough. It goes by the name of Tether, a not-so-impressive coin. For those who do not know, Tether is a coin which has its price pegged (or tethered) to that of the US dollar. It shows this fact off by having its ticker (or initials) as USDT. It’s clear value is that it is meant to always be equal to the dollar. And looking through their price history shows that for the most part this is true. Whereas there have been fluctuations over the past thirty days it seems to still keep close to the 1USDT = $1 mark. After every price change its price quickly gets returned to the $1.00 per coin mark. The appeal of Tether comes from the fact that it is supposedly a safe coin to hold your savings in as it is never meant to rise or fall. For instance, say you make a $500 profit from XRP (Ripple) but don’t want to exactly withdraw it yet as you’d like to day-trade with your profits. The idea is that you would convert your $500 worth of XRP into Tether on an exchange so that you would have 500USDT which you could still easily trade with for other coins. It is a safe way to keep profits without withdrawing to fiat (real world money like USD/GBP/EUR). It is also a way of avoid taxation; although I am not encouraging this.
The developers of Tether claim that every 1 Tether is backed by 1 US dollar, meaning that for every Tether in existence there is 1 dollar owned by the developers backing it up and upholding its steady price of 1Tether=$1. This is a nice sentiment but that’s all it is. On Tether’s Terms and Conditions you find this sour tasting paragraph: 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. In essence, this is saying that Tether has no obligation to uphold its price to $1 per coin. This may be of no surprise, and there will be people out there who say that it is ludicrous to think that Tether owed that form of responsibility to any of its users; no other coin is expected to keep a steady price. But this is where Tether is different. With a quick look at their homepage you will find a promise to always have their coin backed by the dollar.
It is unlikely that this is really happening. There are several reasons why but I’ll start with an obvious. If Tether’s price lowers to 1USDT = $0.95 how can there be a backing? A price like that suggests that for every $0.95 worth of Tether there is one dollar laying by its side which you can get from it. Tether tells you that your USDT is worth a dollar but in actuality it could be worth anything. Already the idea of a 1:1 backed coin gets obliterated. If you can’t find a seller willing to pay $1 per Tether then your Tether is not exactly worth $1. That is something newcomers need to be mindful of: no cryptocurrency has a true value, all market prices are decided directly by buyers and sellers on exchanges and every exchange will provide a different price for each coin. In many ways this is the same for fiat currencies too. An experienced crypto investor/trader will know the pitfalls of Tether, but those who are just getting started see it as a fantastic idea. The cherry on the top is that Tether’s website makes it abundantly clear that you cannot sell Tether back to them.
There is another concern regarding Tether. In April 2017 Tether’s bank prevented them from taking out new wire transfers, yet just months later they stated on their website that they have acquired $220 million to continue their dollar backing of Tether. Now, this may not be a talking point at all as there are many other ways to get hold of money other than wire transfers, and in an ecosystem where there are several coins which aim to replace the archaic methods of the bank transfer it is entirely plausible that they got the money through other means. I just thought it was worth a mention.
To continue the argument that Tether is not worth what it says consider the way in which 1USDT is made. Unlike Bitcoin, Ethereum, Monero, and tons of other coins Tether is not mined. Instead new Tether is made through a somewhat elusive method devised by the creators. It is essentially created by the development team stating that it exists. They basically announce to the world that they have (for instance) $100 million and are going to turn it into 100 million Tether. What’s more is that Tether’s only listed legal partner is an exchange which doesn’t even stock Tether as a coin. We are talking about Bitfinex here. This is shady to say the least.
What I have covered here is only the tip of the iceberg. Tether is something to be on the lookout for, but not for good reason. My advice here is to not purchase any Tether, or at least any amount which you cannot afford to lose. Do not consider it as a means of holding profits ever. It can seem appealing to put your profits into Tether for an interim period but if the whole thing crashes to zero during that time you could be out of everything. And I understand that this is a fear with any currency but let me make a parallel. If you put your profits into Monero, for example, and it dips it is unlikely that it will hit a price of zero because it is backed by technology that people believe in and a strong development team. So you may lose some profits but there will still be a value. If Tether dips it could hit zero within hours due to its low price and unappealing technology.
Also, if you want to know a little more about how far this rabbit hole goes check out this Reddit post. I covered some of its points but there is much more here.