Tether, the company that issues the most well-known stablecoin has, not for the first time, found itself in the headlines.
On Monday, the company‘s stablecoin, the USDT, dropped by as much as 15% as traders sold Tether and pushed the price of bitcoin
higher—so high it was trading at a 10% premium on popular exchange Bitfinex, the company that shares common investors and management with Tether, including Jan Ludovicus van der Velde.
Why is this important? A stablecoin is meant to be precisely that, stable. Most stablecoins trade at or around $1, often gravitating between 99 cents and $1.01.
The rush out of Tether and into other cryptocurrencies came after Bitfinex said it was having processing issues that caused the company to temporarily pause fiat deposits. A week earlier, Bitfinex denied rumors that the company was insolvent.
On most exchanges, the price of USDT fell below 90 cents on Monday.
Read: Opinion: Your crypto ‘stable coin’ isn’t tethered to anything
Tether’s USDT coin is by far the most traded stablecoin, with a 24-hour volume of $5.4 billion and is the eight largest digital currency with a market cap of $2.5 billion. However, the company has been embroiled in controversy almost since its inception. Most notably, speculation that the company doesn’t hold one U.S. dollar for every Tether, like the company claims.
The company first addressed these rumors when it announced an independent law firm had confirmed that on June 1, at the close of business, the company did hold the amount of U.S. dollars equal to Tether. However, the report was met with skepticism as the data was at a single point in time, despite the law firm having access to the accounts for four months.
A week earlier, a research study by University of Texas professor John Griffin concluded that Tether had been used to pump up the price of bitcoin on the Bitfinex exchange, again a claim the company denied.
Furthermore, Bloomberg reported in December that both Bitfinex and Tether had been sent subpoenas by the Commodity Futures Trading Commission.
Read: Law firm confirms Tether was — as of June 1 — 100% backed by U.S. dollars, but questions remain
The popularity of stablecoins has surged in the past few months with a many prominent exchanges such as Gemini Trust Co. and Circle entering the fray.
One reason stablecoins have become popular with investors as their ease to trade between cryptocurrencies as opposed to going back and forth between fiat, which incurs processing fees and time delays.
However, companies like Gemini and Circle hope their respective stablecoins will become an international means of payment, not just a funding currency for trading platforms.
Read: Goldman Sachs-backed Circle goes live with currency-linked stablecoin
As at midday Oct. 15, eight hours after the selloff, Tether had recovered off its low but was still trading at a discount around 95 cents, according to CoinMarketCap.
Bitfinex had not returned a request for comment from MarketWatch.
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