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ChainDD Exclusive | Warning Signs: USDT Shows a Daily 7.45% Loss

Abstract : Tether (USDT) has been acting as a bridge between digital and fiat currencies, given the fact of gap exists between two worlds. However, the trust issue happened recently rang the alarm again: where are the USDT-represented stable coins going to? Should we be worried?

ChainDD
ChainDD

Oct 30

ChainDD app shows that Bitcoin started its first-round increase from 14:00 on the 15th of October, (UTC+8). The price of Bitcoin rose from $6700 to $7100 in just 5 minutes. Same day at 14:44, BTC/USDT trading pair went up by $300, from $7200 to $7500. In the following two hours, the price of BTC jumped from $6395 to $7591, which represents an 18.7% gain. Later, the price of BTC went back to $6803 as at 17:42, October 15 (UTC+8).

At the same time, Huobi Pro witnesses an increased ETH/USDT trading pairs, which was in align with BTC/USDT pair. On October 15, during the period of 13:00 till 14:50 (UTC+8), the price of ETH increased from the lowest of $197.53 to its peak at $239.77. As of 17:45 on October 15 (UTC+8), the price of ETH is $216.4.

As the average price of other cryptocurrencies rose across the board, USDT tumble. During the one-hour period from 13:00 to 14:00, USDT suffered a great loss of 5.1%, from CNY6.82 to CNY6.47. From 14:00 to 14:20, It only bounced a little and ended up with RMB6.77. And then at 14:50, BTC/USDT and ETH/USDT trading pairs spiked to a high of the day, while USDT slid to $0.92, bid price was $0.9168 (converted to CNY6.34). Compared to the price of CNY6.85 on 14:50 in14th, it was a 7.45% decrease in 24 hours.

BTC, ETH and USDT price on October 15, 2018. Source: Huobi Pro

ChainDD App confirmed that the price of USDT on Huobi OTC once hit the bottom of CNY 5.54 before it rebounced a bit. At 15:35 that day (UTC+8), USDT OTC premium rate was as low as -7.5325% on the Huobi exchange.

OTC premium rate. Source: Huobi OTC

USDT price on October 15, 2018. Source: Huobi OTC

USDT (Tether) is a cryptocurrency issued by Tether Limited in 2015, which claims that each token issued is backed by one United States dollar. The idea was that the amount of USDT in circulation matched the amount of actual US dollars held Tether Limited’s bank account. USDT provides a solution to the gap between fiat and digital currencies.

Noble reportedly bankrupt and its insolvency has been questioned

On October 1, 2018, Noble Bank in Puerto Rico has reportedly seeking buyer. Noble lost its banking relationships with many big clients, including Tether and Bitfinex, according to Bloomberg.

Afterwards, Bitfinex has denied that it is insolvent, and the lost banking relationship with Noble Bank has no impacts on its operations.

On October 11, 2018, Bitfinex announced that Euro, US dollar, Japanese Yen and English Pounds deposit service were suspended. On Bitfinex official blog, it claimed that fiat deposit would back to normal on October 16, and fiat money withdraw is always working as per normal.

On the afternoon of October 15, the Kucoin exchange announced that all USDT trading is stopped, and any USDT related trading pairs deposit and withdraws was not available until further notice made. This announcement, thought probably not the fundamental reason of USDT crashing, but triggered freaked-out investors to lose their faith and ended up with big dumping.

Then, Bitfinex also stated that all digital and fiat currencies withdraw are working as per normal, except for some users’ fiat deposits were temporarily out of service.

Questions about lack of dollar reserves

There are around 3.080 billion USDT in circulation, according to Coinmarketcap. Since USDT is backed 1:1 by US dollars, Tether should have $3.080 billion fiat reserves in its bank account to back the token.

ChainDD has an extensive report regarding to USDT before: link. The report mentioned that according to the auditor, Friedman LLP, Tether Ltd had $443 million US dollars and 1590 Euros (converted to USD$1970) in its bank accounts on September 15, 2017. Which means Tether’s fiat value matched its digital value if the auditing report was reliable. However, people should be aware of that the report did not disclose the name of the bank and/or related institutions.

The audit report was published on September 15, 2017. After that, USDT has been issued a lot coins for more than one time within several months. Its market value jumped from $400 million in September 2017, to $2.2 billion in February 2018, and reached to $3.08 billion in October 2018. Theoretically, Tether needs 3.08 billion US dollars to back this up, or reserves more than 2.6 billion fiat US dollars. However, no evidence shows that Tether Ltd has sufficient reserves as it should have.

USDT market value on October 2018. Source: Coinmarketcap

Stable coin competition, investors allocate their assets investment

ChainDD App concluded that there were more than 10 institutions issued stable coins just in September this year. Gemini Dollar (GUSD) and Paxos Standard (PAX) are pegged to USD, and are issued by the New York Statement of Financial Services regulated Trust company. Other stable coins include TrueUSD (TUSD), Dai (DAI), SteemDollars (SBD), bitUSD (BITUSD), nUSD (NUSD), etc. and also, stable coin issued by Cred, a trust company, and audited by PwC.

Given the centralisation feature of some cryptocurrencies issuers that backed by fiat, such as USDT, traditional financial organisations’ problems might also be raised in the future. Without proper supervision and regulation, excess issue and lack of transparent are expect to happen. Especially when it comes to stable coins, coins regulated by the government and/or audited by independent third party are more convincing.

When USDT suffered the crashing, other stable coins went up. ChainDD noticed that the price of TUSD is $1.09, which represents a daily 5.39% gain. The price of PAX is $1.10, means a daily 6.69% gain, and GUSD, with the price of $1.10 and 7.40% daily gain. Clearly, USTD is not the only stable coins option. Investors are willing to allocate their non-system risk in this fluctuating market, and this willingness make USTD lost its believers.

When people were freaking out, one of the Bitfinex shareholders’, Dong Zhao posted on Weibo, (a type of social media, similar to twitter), saying that “Please do not ask me what is going on with USDT. I cannot make any promise regarding to Bitfinex”. However, in the past, when USDT being questioned by the public, Dong Zhao stood up and explained to the public.

Please do not ask me what is going on with USDT. According to Bitfinex, USDT is all-good. But personally I cannot make any promise regarding to Bitfinex. I just tend to believe them. OTC transaction is what we have, and market price is what we refer to. We are bearing the risk, and making money accordingly.

--- Letian Zhao

So, what is behind such a non-transparent operations of USDT? There are lots of discussions without a clear answer. However, people should always be reminded of this very truth: we can never afford to ignore the risk; we should always make wise investment decisions.

As of this writing, the price range of USDT is stabilized at CNY6.65 to 6.69. Current price is CNY 6.68, showing a 5.36% increasing compare to the daily lowest point.

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