In a continuing series comparing Steemit to other altcoins, this article discusses the fiat currency-tethered altcoin Tether. While both altcoins seek to redefine the way commerce is done in the new economy, the correlation is noticeably shallow. Even though Steemit is controversial in that it may be, in fact, a publicly-traded commodity, Tether may be on a totally different level with regard to the currency's implications on the market.
Tales of the Tape
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Tether (USDT/EURT) | Steem (STEEM) |
| Utility | Fiat-currency backed digital currency | Steemit network store of value, social network reward token |
| Number of Holders | Less than 1,000 | 500,000+ |
| Community | Medium-sized (based on ~23,100 Twitter followers and 1,667 Facebook followers) | Large |
| Market Capitalization (2017) | $1,381,50,797 | $940,021,504 |
| Daily Trading Volume (High, 2017) | $4,298,070,000 | $3.987,600 |
| One-Year Performance (2017) | 1,710% | 4,835% |
| Public Awareness | Low | Low |
Transparency
Recently, Tether has been accused of price manipulation. The altcoin - which is tethered according to the United States dollar and the Euro - has issued another 300 million USDT tokens at $1 per token on March 20th. This made bitcoin prices spike six percent.
This is problematic on two fronts. First, an altcoin that is tethered in such a way to fiat currency is a commodity. For such a commodity to work, there must be proof that there is enough capital to support the commodity's claims and that adequate know your customer/anti-money laundering (KYC/AML) protocols are in place. While a study conducted in February suggests that there may be enough cash reserves available in a Puerto Rican bank to support Tether's tokens, the lack of transparency and the altcoin's sister company relationship with the exchange Bitfinex have made the altcoin opaque to would-be investors and auditors.
Second, this type of injection of capital into a highly liquid market has a way of exasperating risk. As Tether is actually tethered to fiat currency, it has an asset-based minimum value, unlike other altcoins. This means that its presence on the exchanges is suddenly a supporting pillar for the entire market. If it turns out that the altcoin is issuing tokens for currency it does not have, that pillar becomes vulnerable. Should the pillar collapse, the entire market that relies on it for support will collapse along with it. The reality of the altcoin market is that a bitcoin collapse would not sink altcoins, but a tether collapse just might be the straw that breaks the camel's back.
Tether's ending of its relationship with the auditor that vetted the company's full monetary backing is troublesome, as there are no new audits pending. As Weiss Cryptocurrency Ratings reports: "Tether is the only 'cryptocurrency' with trading volume that regularly exceeds that of its market cap. This means the entire Tether supply changes hands regularly, sometimes more than once a day. ... This is important to know because it tells us that Tether is used for trading A LOT. It's one of the main sources of liquidity in the cryptomarkets."
"Liquidity is the lifeblood of a market. It's what makes prices stable and seamless trading possible. The consequences could be far-reaching. What happens if Tether does turn out to be shaky? ... What if this large source of liquidity suddenly evaporates?"
The United States Commodity Futures Trading Commission has subpoenaed Bitfinex and Tether.
While Tether may have superior numbers over Steem, there may be no real comparison. Why? Reason one is that Tether is largely held by major industrial players and is not something the regular investor would consider investing in. Reason two is that it has lost market position in the last year, making it worthless if not for its high liquidity. Reason three is that it is not clear that Tether is a legitimate offering; this will not become obvious until an independent audit is done.
In short, it may be wise to avoid Tether. Sadly, however, it may not be that easy. As Tether is a primary liquidized asset on the market, Tether may be too intermeshed in the market's bloodstream to be easily separated. Should Tether collapse, the whole altcoin community could potentially follow.
It is important that you realize the risks involved in engaging in any altcoin activity before investing. As always, due diligence is key.
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