Is Tether (USDT) A Scam?
Why is there controversy?
- -The company has failed to provide a promised audit showing that adequate reserve back it
- – Alleged role in manipulating bitcoin’s price
- – unclear relationship with Bitfinex
- – lack of long-term banking relationship
1. Do they make bombastic claims?
While Tether makes no claims about promises for high returns (due to it being a stable coin). They do claim the token is backed by actual dollars, but an audit revealed that tether is only backed 74% (more on this in section 8). Still, there is no promise from leadership that investing in Tether will yield high returns
2. Is there a tiered-referral system?
3. Where can it be traded?
USDT is the most used cryptocurrency, having surpassed even BTC in daily traded volume, with a majority of users relying on it to transfer value between exchanges because of its stability. It’s the 3rd largest crypto by market cap (as of 3:50 pm EST 6/10/20) & traded on many exchanges
4. Is it legal in the US & other regulated countries? Why or why not?
Well, yes, and no.
Legal controversy has surrounded Tether since accusations that Tether was used to manipulate the price of bitcoin in 2017. Additionally, NY Attorney General filed a suit in April 2019 accusing Bitfinex of using Tether’s reserves to cover up a missing $850 million
While USDT can be held in some custodial wallets (like Coinbase) that allow US customers, the exchange most commonly associated with Tether (Bitfinex) stopped serving US customers on August 15, 2018 stating “Exchanges based in the U.S. are better positioned to properly service retail U.S. customers”
Additionally, Tether’s legal terms indicates that U.S. residents (with an extra emphasis on inhabitants of NY) are prohibited from holding USDT tokens in Tether’s wallet. As the wording in the legal document is somewhat confusing, I reached out to Stuart Hoegner – the team’s chief legal counsel – for clarity. He responded on Twitter saying,
“Pursuant to @Tether_to’s terms of service, U.S. persons (as defined in the TOS) are not permitted to use our services. That includes U.S. residents (see para. 22.214.171.124)…. The NY prohibition is broader, but for individual residents of the U.S. – whether in NY or not – it amounts to the same thing.”
This is likely related to rules and regulations of the SEC and the allegations brought against the firm by NY’s AG.
5. Do actual experts promote it?
Not exactly: traders use it (because it’s very useful for trading!), but using tether is not necessarily an endorsement of it.
6. Who are they marketing to? Noobs or saavy buyers?
I’d say they are primarily marketing to traders and others who want the ease of transferring money offered by cryptocurrency without the potential volatility, meaning those who are transferring large sums of money. IMO these are not typically noobs
7. Who is on the team? Are they real, pseudonymous, or fake?
- A. Current Team
- i. Jean-Louis Van Der Velde – CEO – also CEO of Bitfinex (more on that later) with a long history working in fintech
- ii. Giancarlo Devasini – CFO – also CFO of Bitfinex, started his career as an MD
- iii. Stuart Hoegner – General Counsel – iGaming attorney
- B. Founding Team/Former Team
- i. Brock Pierce – co-founder – No longer officially affiliated with Tether but was instrumental in it’s creation and early development
- ii. Reeve Collins – co-founder –
- iii. Craig Sellars – co-founder –
- iv. Reggie Fowler – former NFL owner, indicted for
8. Have the founders made claims that have since been proven to be false?
Yes, Tether’s founding team originally claimed that USDT was backed 1-1 with dollars, but in March 2019 team attorneys discovered that wasn’t true. Tether changed their statement, claiming instead that the token’s stability is backed by a combination of dollars and loans to affiliate companies. In April 2019, Tether’s attorney claimed each Tether was backed by $0.74 in cash &/or cash equivalent, which is fractional reserve lending that many take issue with as it’s part of the problem with the Federal Reserve
For more information about allegations of false claims and how various journalists and researchers have reached those conclusions, please view the “Tether (cryptocurrency)” wiki, and refer to the notes for sources.
9. Do they have a functioning blockchain or token?
Yes, USDT is the most used cryptocurrency. Additionally, Tether Limited has 4 tokens: 2 are pegged to the US dollar, and 2 are pegged to the euro. 1 of each is issued on the bitcoin blockchain using the Omni Layer Protocol, and 1 of each is an ERC-20 token
10. Check github repository for relevant activity
11. Look up the smart contract
Available here on etherscan.io.
12. Listen to your gut/instinct