Tether has problems you need to know
In today’s edition, Tether is in distress, and LUNC zooms.
Good morning! Welcome to The Daily Moon. It’s a brand new week. Ethereum Name Service is suing GoDaddy for selling eth.link to a third party. It seems ENS tried to re-register before the domain expired. But the transaction never went through. A possible reason? The original domain owner is in jail.
Today we talk about why Tether has a crisis to handle and decode Luna Classic’s mysterious rise.
The markets were positive but cautious. Bitcoin crossed $21,000 while Ethereum climbed to $1,750 levels. Nasdaq rose on a technology rally. Back home, Sensex and Nifty gained on a rise in bank stocks.
Photo by DrawKit Illustrations on Unsplash
Tether’s Making People Nervous
Tether is termed the “lifeline” of the crypto ecosystem. Unlike Terra, it was meant to be a real stablecoin. Backed by real currency, Tether became the alt investment for stability. But there is unease about the token. After the Terra-Luna collapse, Tether de-pegged from the US dollar and fell to $0.95 in May. The platform says it learnt from those nervous months. Let’s see what it has learnt.
How it starts
Launched in 2014, Tether aimed to tone down the volatility that comes attached to tokens. Tether decided that its stablecoin should be exchanged 1:1 against the US dollar or any other currency it planned to back. (Hint Euros and Pounds)
Between 2014 and 2017, things were calm. But the cracks appeared in 2017 when there was a $30 million hack at Tether. The company’s auditor was fired soon after.
Since then, Tether has been inundated with controversies. In 2019, its management said reserves backed Tether 100%. Then it “clarified” that those reserves could be other assets apart from currency. Tether has a staggering market cap of ~$67.6 billion. A de-peg will ruin millions of people.
You see how that worries investors?
Now, this raises three questions.
Type of reserves: Tether has disclosed what constitutes the reserves. About 44% is US Treasury Bills, but the actual cash is just ~8%. So what about the promises of 100% dollar backing?
Exposure to foreign bonds: There has been chatter that Tether holds bonds backed by Chinese companies. The platform denied it but refused to give any more details. Doesn’t look good, does it?
Where are the audits? The platform has been questioned repeatedly because it has delayed audits on its finances.
For its part, Tether has volunteered to publish what makes up its reserves every month. But it hasn’t given a timeline for when it will start these disclosures. If there was a flag to raise, it would be now.
Family woes
Tether’s parent company, the Hong Kong-based iFinex, also owns a crypto exchange, Bitfinex. For those who may not know, the exchange has been in a spot of trouble before. In 2021, the US Attorney General said that Tether and Bitfinex overstated reserves and hid $850 million in losses.
What comes next?
It has bigger dreams, to become the digital version of the petrodollar. It’ll probably have to be even more transparent with oil.
LUNC’s Insane Rally Has An Expiration
The big boys of crypto may be hurting, but one little fella is soaring high. Remember Terra Classic (LUNC), the renamed native token of Terra? It has risen to over 250% in September.
What’s happening?
The Terra community approved a 1.2% tax rate proposal a few weeks ago, which will bring down LUNC’s high supply. This tax will be sent to a wallet to destroy tokens, reducing their circulation. It is also offering an annualised yield of ~38%. No other token can compete with that promise.
This is making me nervous
You should be nervous. Experts have asked people to not read too much into the rally. The crypto community, as a whole, isn’t very excited about the zombie token, anyway.
And that’s it for today. If this email was forwarded to you, please consider subscribing. It’s free. We’ll never show you an ad or charge you for this. We swear.
Who are we? There is a lot happening in our world. Everything has layers, and each layer has to be carefully peeled so you, the reader, know how the world of money is changing every day. That’s our promise. Help you unpeel the onions, which are the public markets in the US, India, and crypto, so that you know just a little more.