Tether Holdings Ltd. operates the largest stablecoin in the cryptocurrency market with a value of $68 billion. However, its founders and owners have scant experience in managing finance at this scale. This article provides insight into the people behind Tether and the challenges it faces as a financial institution.
I have always been opposed to investing in speculative and worthless items that cannot be classified as “assets.” Tether is one such item, and I wrote an article on another platform a few months ago about my concerns. Among other things, I forecasted that Tether would “collapse next year, but I would be astonished if it could last until 2023.” I am steadfast in my prediction.
Unusual Founders and Owners:
Tether’s founders and owners are an eclectic group of individuals. One founder, Brock Pierce, was a former child actor turned early crypto investor, while another founder and top shareholder, Giancarlo Devasini, practiced plastic surgery before venturing into electronics importing and then crypto. Additionally, one of the newer owners has immersed himself in British politics.
Tether operates like a traditional financial institution, more likely a central bank, requiring sophisticated portfolio management and trading strategies. The company must also instill confidence among its customers to prevent a run on the cryptocurrency. However, concerns arise because Tether made loans with tether and lent them to entities that promised to pay $1 for each tether. In May 2021, Tether had lent Celsius tether worth $1.8 billion, collateralized by $2.6 billion of Celsius’s crypto assets, which could put Tether at risk if borrowers cannot pay back their loans.
Tether and several related crypto businesses paid a combined $61 million in 2021 to settle probes by the New York Attorney General and the Commodity Futures Trading Commission. The investigations revealed that Tether had made several public misrepresentations about the assets backing the stablecoin. The lack of regulation and transparency have emerged as risks for investors at other crypto companies.
The firm releases little information about itself, much like the rest of the crypto industry. It has never disclosed its ownership structure, the details of how its assets are managed and how it would prevent a wave of redemptions from toppling the cryptocurrency. When questions were raised by investors about its lending programs, it refused to disclose the borrowers or the collateral they posted.
Secrecy, lack of experience and little regulation have emerged as risks for investors at other crypto companies. Weaknesses in the way Tether is managed were exposed in two government investigations. The company and several related crypto businesses paid a combined $61 million in 2021 to settle probes by the New York Attorney General and the Commodity Futures Trading Commission.
The investigations showed that Tether had made several public misrepresentations about the assets backing the stablecoin. Tether didn’t admit or deny the findings of the investigations. Since then, Tether has boosted disclosure about its holdings, though the company still releases less information than comparable financial firms. Tether grew out of separate efforts led by former plastic surgeon Giancarlo Devasini and Brock Pierce, a longtime entrepreneur and crypto evangelist who played a young hockey player in The Mighty Ducks movies.
The Model and Risks:
I reiterate my opinion that there are two opposing forces at play, one issuing warnings and signals, while the other remains indifferent. In my opinion, Tether is on the verge of collapse next year, and even if it manages to survive, I would be surprised if it could sustain itself until 2023.
Several platforms are acting as its vanguards and defenders, but come 2022, these platforms – including crypto exchanges, lending and trading entities – will be the first to falter. Given Tether’s widespread reach, it is likely that pockets holding Tether will burn to ashes before the fire reaches the token itself. 2022 will witness the destruction of these pockets, and the fire will eventually engulf Tether in 2023.
Tether faces a range of risks that could potentially lead to a collapse in its value. Investors should carefully consider these risk factors before deciding whether or not to invest in the token. There are several risk factors that could potentially cause Tether to lose everything:
- Lack of Transparency: One of the biggest concerns surrounding Tether is its lack of transparency. The company has been accused of not providing sufficient information about its reserves, and its accounting practices have been called into question. This lack of transparency can erode confidence in the token, leading to a loss of value.
- Legal and Regulatory Risk: Tether operates in a largely unregulated space, which makes it vulnerable to legal and regulatory risks. The token has already faced lawsuits and investigations, and any unfavorable rulings or changes in regulations could have a significant impact on its value.
- Counterparty Risk: Tether relies on third-party entities to hold its reserves, which creates a counterparty risk. If these entities were to fail or engage in fraudulent activities, it could cause Tether to lose its reserves and lead to a collapse in its value.
- Market Risk: As a stablecoin, Tether is designed to maintain a stable value relative to the US dollar. However, market forces can cause fluctuations in its value, particularly during periods of market volatility. Any sudden drop in value could trigger panic selling, further exacerbating the problem.
- Reputation Risk: Tether has been mired in controversy, with accusations of price manipulation and insider trading. These issues have the potential to damage its reputation, causing investors to lose faith in the token and leading to a loss of value.