Cryptocurrencies are built on blockchain technology that removes the power of any government to control or manipulate them. The foundation of cryptocurrency is decentralization, which brings democratization of finance to everyone. One of the biggest innovations in the crypto space are coins that have their value pegged to fiat currencies. These assets are called stablecoins.
The U.S. Dollar, one of the strongest currencies in the world, was a natural choice pegging to a cryptocurrency. Several crypto companies scrambled to create the first-ever digital currency physically backed by the U.S. Dollar and linked to its value. One of those companies is Tether Limited, a Hong Kong-based cryptocurrency firm.
Tether USD (USDT)
Tether Limited first issued the stablecoin in 2014 under the name Realcoin. Realcoin was built on the Bitcoin network. However, Tether renamed the coin as USTether, and then USDT. Later, USDT migrated the coin to Ethereum and provided an upgrade to make it compatible with other blockchain networks.
USDT is backed by a physical reserve of fiat money, treasury bills, and other financial assets to give it real value. Presently, USDT has a circulating supply of 76.38B USDT and a total supply of 79,351,995,261. It is essential to know that USDT, as a stablecoin, has no maximum supply. This uncapped supply is necessary to stabilize the demand and supply forces. But a challenge has arisen from that.
USDT Supply Like a Runaway Train
On December 4, Yahoo! Finance reported that Tether minted over 3 billion USDT within two weeks. Tether capped that with a fresh 1 billion USDT minted on TRON on December 4. This means that the crypto company minted the equivalent of $4 billion within two weeks. For context, the U.S Federal Reserve reported that for 2020, there are 50.3 billion USD notes across all denominations in circulation.
It is also important to note that USDT is only one of 36 stablecoins, including Binance Stablecoin (BUSD), Gemini Stablecoin (GUSD), and Coinbase Stablecoin (USDC), among others. USDT is the biggest by market cap, closely followed by BUSD. Together, they have a larger share of the stablecoin market cap.
Regulatory authorities are now concerned about the uncontrolled nature of Tether. Although USDT’s potential market cap can’t be predicted, without a hard maximum supply, it might become the single most-issued coin ever.
U.S. Authorities Urged to Investigate Stablecoins
In January, Tether was reported to be under investigation by the SEC. This time, reports said that the SEC was not investigating USDT’s status as security but investigating the firm for potential fraud and for making false claims.
In July, Tether reported that the U.S. Securities and Exchange Commission (SEC) was investigating its claims about each USDT coin being backed by paper USD. But the SEC did not impose sanctions or regulations on the firm. However, calls for stablecoin regulations increased.
Today, U.S. Senator Sherrod Brown (D-OH) warned that inventors who purchase USDT face a significant risk of losing their funds. Speaking at the U.S. Senate’s Banking, Housing, and Urban Affairs Committee hearing yesterday, Brown said that stablecoins are not decentralized and carry more risk of becoming worthless. Brown had earlier asked stablecoin issuers to detail the trading of stablecoins for fiat.
Another U.S. Senator, Elizabeth Warren (D-MA), warned that DeFi opens crypto consumers to scams and that stablecoins are increasing that risk. She called for more decisive action to create and enforce stablecoins and cryptocurrencies regulations.
In October, the Commodities Futures Trading Commission (CFTC) fined Tether $41 million for a “lie” about its assets being backed by the dollar. The situation heightened concerns about the safety of a coin that has reached a $76 billion market cap. USDT is the most-traded coin in the market today and is used to perform over 74% of deposits and withdrawals across exchanges.