Tether is a digital token that claims to be backed by US dollars at a 1:1 ratio, meaning that each USDT is supposed to represent one US dollar in reserve.
However, there are serious doubts about whether this is true, and whether tether has enough collateral to back up its supply.
Tether is the most widely used stablecoin in the crypto market, accounting for more than 60% of the total stablecoin market cap and more than 70% of the Bitcoin trading volume.
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Tether is often used as a medium of exchange between different crypto assets, as well as a store of value and a hedge against volatility. However, tether also poses significant risks to the crypto ecosystem, such as:
Lack of transparency and accountability: Tether has not provided a full audit of its reserves since 2018 and has been accused of manipulating the crypto market by issuing new tokens without sufficient backing.
Tether has also been involved in several legal disputes with regulators and law enforcement agencies, such as the New York Attorney General and the US Department of Justice, over its business practices and compliance issues.
Systemic risk and contagion: Tether’s dominance in the crypto market makes it a potential source of systemic risk and contagion, as any disruption or loss of confidence in tether could trigger a massive sell-off and liquidity crisis in the crypto space. This could affect not only tether holders, but also other crypto users and investors who rely on tether as a bridge between different platforms and assets.
Competition and innovation: Tether’s dominance in the stablecoin market could stifle competition and innovation, as it reduces the incentives and opportunities for other stablecoin projects to emerge and challenge its position. Tether could also hinder the adoption and development of central bank digital currencies (CBDCs), which are expected to play a key role in the future of digital finance.
One of the main challenges of regulating stablecoins is the lack of a clear and consistent definition and classification of what constitutes a stablecoin. Different jurisdictions may have different approaches and criteria for determining the legal status, nature, and function of stablecoins, which may create confusion, inconsistency, and arbitrage opportunities for stablecoin issuers and users.
Moreover, some stablecoins may fall outside the scope of existing regulatory frameworks or authorities, creating gaps and loopholes that could be exploited for illicit purposes. Therefore, there is a need for a harmonized and comprehensive definition and taxonomy of stablecoins that can provide clarity and certainty for all parties involved.
Another challenge is the lack of transparency and accountability of some stablecoin arrangements. Stablecoins rely on various mechanisms and algorithms to maintain their peg to the underlying reserve, but these may not be fully disclosed or audited by independent third parties.
This may raise questions about the adequacy, availability, and quality of the reserve assets, as well as the governance and risk management practices of the stablecoin issuers and operators. Furthermore, some stablecoins may not have adequate consumer protection measures in place, such as insurance, dispute resolution, or redress mechanisms.
This may expose users to potential losses or frauds in case of operational failures, cyberattacks, or market shocks. Therefore, there is a need for more disclosure and reporting requirements for stablecoin arrangements, as well as more oversight and supervision by competent authorities.
Therefore, I believe that the increasing dominance of tether is bad for the wider crypto ecosystem, and that we need more diversity and regulation in the stablecoin market. We need more stablecoins that are transparent, accountable, compliant, and backed by real assets or algorithms.
We also need more oversight and governance from regulators and industry stakeholders to ensure that stablecoins are safe, sound, and fair for all users.
Genesis seeking approval to sell Bitcoin, Ethereum worth $1.6B
Genesis, a leading digital asset platform, has announced that it is seeking approval from the US Securities and Exchange Commission (SEC) to sell $1.6 billion worth of bitcoin and ether trust holdings. The company filed a Form S-1 registration statement on January 31, 2024, indicating its intention to offer shares of its Genesis Bitcoin Trust and Genesis Ethereum Trust to the public.
The trusts are designed to provide investors with exposure to the price performance of bitcoin and ether, respectively, without the need to buy, store, or manage the underlying assets.
The trusts hold bitcoin and ether in cold storage with Coinbase Custody Trust Company as the custodian. The trusts also use the CME CF Bitcoin Reference Rate and the CME CF Ether-Dollar Reference Rate as the benchmarks for determining the net asset value (NAV) of the shares.
In January, bankrupt exchange FTX sold over $1 billion worth of GBTC holdings. That coincided with the price dropping to $39,000 from $49,000. Nearly $1.4 billion of Genesis’ assets were held in Grayscale Bitcoin Trust (GBTC), which has since converted to become a spot exchange-traded fund (ETF), CoinDesk review. It also holds $165 million in Grayscale Ethereum Trust and $38 million in Grayscale Ethereum Classic Trust, the filing shows.
Genesis is one of the most established and reputable players in the digital asset space, offering a range of services such as trading, lending, custody, derivatives, and prime brokerage. The company has been operating since 2013 and is a subsidiary of Digital Currency Group, which also owns Grayscale Investments, CoinDesk, and other prominent crypto-related businesses.
By seeking SEC approval for its trusts, Genesis aims to provide more regulatory clarity and investor protection for its products, as well as to expand its market reach and liquidity. The company hopes to attract institutional and retail investors who are looking for a convenient and secure way to gain exposure to the two largest cryptocurrencies by market capitalization.
The SEC has not yet approved any bitcoin or ether exchange-traded products in the US, despite several attempts by various issuers over the years. The regulator has expressed concerns about the potential for market manipulation, fraud, and lack of adequate custody solutions in the crypto space.
However, some analysts believe that the SEC may be more open to approving crypto products under the new leadership of Gary Gensler, who was sworn in as the SEC chairman in April 2023. Gensler is a former MIT professor who taught courses on blockchain and digital currencies and has acknowledged the potential benefits of innovation in the financial sector.
If approved, Genesis’ trusts would compete with similar products offered by Grayscale, which currently dominates the market for crypto trusts in the US. Grayscale’s Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) have over $40 billion and $10 billion in assets under management, respectively, as of February 4, 2024.
However, Grayscale’s trusts trade at a significant premium or discount to their NAVs, depending on the supply and demand dynamics in the secondary market. Genesis’ trusts may offer a more accurate and efficient way to track the prices of bitcoin and ether, as well as to reduce the fees and risks associated with buying and holding the actual cryptocurrencies.