Tether Limited, the issuer behind the cryptocurrency Tether, asserts that each Tether token is pegged to fiat currencies at a 1:1 ratio. This stablecoin concept implies that 1 Tether holds the value of 1 USD since it’s pegged to the US dollar. Tether circulates on various blockchains such as Bitcoin/Omni Protocol, Ethereum/ERC20, and Tron/TRC20. Many cryptocurrency exchanges adopt Tether due to a lack of infrastructure for fiat deposits and withdrawals.

Initially, only USDT existed, pegged to the US dollar, but over time, other types of Tether tokens emerged, including EURT (pegged to the Euro), CNHT (pegged to Offshore Renminbi), and XAUT (pegged to 1 oz t of gold). However, USDT remains dominant due to its overwhelming usage.

Tether tokens are backed by reserves, with each Tether representing a corresponding value of fiat currency held in reserve. The issuer claims that for every Tether token issued, there is an equivalent amount of fiat currency held as collateral. The process of exchanging Tether involves depositing fiat currency directly with Tether Limited or its subsidiary, Bitfinex, or purchasing Bitcoin with the local fiat currency and then exchanging it for Tether on Tether-enabled markets.

Tether’s issuer generates revenue primarily by investing received fiat currency in funds, alternative energy, securities markets, cryptocurrencies, etc. Additionally, when withdrawing Tether tokens for fiat currency, a 1% fee is levied, akin to traditional banking practices.

However, controversies surround Tether, primarily revolving around the discrepancy between the claimed 1:1 pegging to fiat currencies and the actual reserves backing Tether tokens. Questions arise about whether Tether Limited issues more tokens than the fiat currency reserves it holds, raising concerns about its solvency.

During periods of extensive issuance, Tether tokens were created at a pace surpassing billions of dollars weekly, far exceeding the issuance of the US dollar by the US government. This discrepancy fueled skepticism about Tether’s collateralization and raised doubts about its reliability.

Allegations have surfaced suggesting that Tether may have been used to manipulate cryptocurrency prices, particularly Bitcoin, by issuing tokens without adequate reserves. The US Commodity Futures Trading Commission has even issued subpoenas to Tether Limited and Bitfinex, two entities closely associated with each other.

Despite Tether’s claims of maintaining a 1:1 ratio with fiat currency reserves, audits to verify this assertion have been lacking, and the company has faced criticism for its lack of transparency regarding its reserves.

In light of these controversies, alternative stablecoins like TUSD and USDC have gained traction, with exchanges increasingly adopting these tokens.

Tether’s controversies show the complexities and risks within the cryptocurrency ecosystem. While it remains widely used as a stablecoin, concerns persist regarding its solvency and potential impact on cryptocurrency markets. As the industry evolves, regulatory scrutiny and investor demand for transparency may shape the future of stablecoins like Tether.