USDT’s backing has been the subject of controversy
Over the years, USDT has become increasingly popular among cryptocurrency traders. However, it has also been subject to several controversies. Critics have questioned Tether’s transparency and if the company is actually able to redeem every USDT in circulation for $1 as they claim.
Tether was embroiled in a legal battle with the New York Attorney General’s office (NYAG) from April 2019 to February 2021, when the two parties reached a settlement. Tether paid a $18.5 million fine as part of the agreement. NYAG had accused Tether of making false statements about the backing of its USDT stablecoin.
With questions swirling around Tether and USDT, alternative stablecoins like USD Coin, Pax Dollar, Binance USD and Dai have seen an uptick in demand.
While some people are still hesitant to use it, no other competitor has been able to beat Tether. USDT is by far the largest stablecoin in terms of trading volume, and USDC is its only challenger when it comes to market capitalization.
To answer its critics, Tether has undertaken greater transparency measures. For example, the company posts a detailed breakdown of USDT’s reserve funds on its website and also offers quarterly assurance opinions to demonstrate that it possesses enough reserves to cover all USDT tokens. According to the company, between May 11 and May 15, 2022., 7 billion USDT were redeemed.
Although stablecoins are often thought to be resistant to volatility, holdings are not entirely risk-free–especially when it comes to reserve-backed options like USDT. If the party responsible for redeeming the token is unable to do so with fiat currency, the coin’s value could drop dramatically or even become worthless.
Although USDT has experienced some fluctuations from its $1 peg, it has always recovered back to that value. However, users should still be careful when purchasing stablecoins.