Stable coin issuer Tether recently announced that it has destroyed roughly 500 million coins (USDT). While frying money seems like a very strange and silly thing to do (who wouldn’t want to be richer?), the currency issuer explained that it had “redeemed a significant amount of USDT from the circulating supply of tokens.”
Tether has been the subject of controversy and differing opinions over the last several months. As one of the cryptocurrency arena’s primary stable coins, Tether differs from payments coins like bitcoin and ether in the sense that it is tied to a fiat currency – in this case, the U.S. dollar – to assure that it doesn’t suffer from the same volatility witnessed in other forms of crypto. While bitcoin, ether, Litecoin and other assets are prone to wild price swings, Tether’s alleged connection to USD prevents this.
Unfortunately, a few dark clouds have gathered over the horizon in recent days. Investors received a scare several months ago when it was alleged by University of Texas finance professor John Griffin that Tether was consistently being used to manipulate bitcoin’s price during the currency’s mega-run in 2017.
Pushing the Bitcoin Envelope
At the time, bitcoin peaked at nearly $20,000, yet according to Griffin’s report, this was simply because a select few would purchase bitcoin shares using Tether whenever its price fell by even a small margin, thereby boosting its value and supposedly attaching it to USD.
This report, however, has failed to convince everyone across the boards. Figures like Joseph Lubin – Ethereum’s co-founder – dismissed these claims, believing that Tether had little or nothing to do with bitcoin’s sudden rise to glory last year, though another good scare occurred earlier this month when the currency’s price – allegedly so stable – fell drastically after it was reported that roughly 3,000 Tether units were sold on an exchange.
Many began wondering how a sale had the potential to mar the price of one of the crypto arena’s most “finely-tuned” stable currencies, and investors ultimately questioned just how solid Tether was.
We Destroy Money – What of It?
Representatives of the coin released a statement regarding the recent destruction of the coins, explaining:
“In line with this, Tether will destroy 500 million USDT from the Tether treasury wallet and will leave the remaining USDT (approximately 466 million) in the wallet as a preparatory measure for future USDT issuances.”
They also allege that destroying the coins – while not normally seen in the crypto industry – is in line with regulations first outlined in Tether’s official whitepaper. It further states that to keep the 1:1 ratio (one USD per one TUSD), Tether will “send fiat withdrawal and revoke the corresponding Tethers” as necessary.
What’s the Point, and How Does It Work?
The process begins when a user deposit fiat currency into Tether Limited’s bank account. From there, Tether Ltd. creates and credits the user’s individual Tether account. The coins enter circulation, and the amount deposited into the Limited account is usually what’s issued to the user. The user then interacts with the Tethers by transferring them, exchanging them or storing them respectively.
Lastly, the user deposits Tethers with Tether Ltd. which are then converted into fiat. The respective Tethers are ultimately destroyed, while the fiat funds are forwarded to the user’s bank account. It’s a long and complicated process; nevertheless, Tether insists it’s the best and safest method of ensuring coins don’t fall into the wrong hands.
The whitepaper reads:
“The main concept is that Tether Ltd. is the only party who can issue Tethers into circulation (create them) or take them out of circulation (destroy them). This is the main process by which the system solvency is maintained.”