Given that the cryptocurrency world is still largely unregulated, it is intensely prone to potential risk. Risk levels are rising sharply as stablecoin Tether, a controversial cryptocurrency that is pegged to the U.S. dollar and acts as a vehicle to trade coins across many of the leading global crypto exchanges, is used more frequently to conduct transactions on new blockchains, experts say. In the world's top two crypto exchanges, Binance and Huobi, Tether was used in fully 40% and 80% of all transactions, respectively, according to a recent story by Bloomberg. The result is that transparency levels in a market which was already murky are becoming even lower.
Migration Away From Bitcoin Means Tracking Is Tougher
As investors move toward Tether-centered blockchains, they are turning away from once-dominant Bitcoin platforms. One of the results is that it becomes more difficult for investors to track their transactions. "Tether has historically enjoyed obfuscation," according to Edwin Ong, the co-founder of Blockspur, a digital assets analytics company, per Bloomberg. "With them being on different blockchains, it's harder to figure out what's going on," Ong added.
Tether's appeal lies in its identity as a stablecoin. Stablecoins are often used as a liquidity pool as a result of concerns about illegal uses of other types of crypto tokens. In the last few months, it has joined sidechain settlement service the Liquid Network, Tron and EOS.
What It Means
While Tether is benefiting from increasing popularity, its use might also undermine transparency, long seen as a core tenet of the cryptocurrency movement. University of Texas at Austin finance professor John Griffin explains that it becomes "more difficult to track" a cryptocurrency across multiple blockchains, although the coin may have launched on multiple platforms "for increased transaction speed and for more difficulty in tracking."
A second report by Bloomberg cites evidence that Tether has been used to stabilize Bitcoin's price as well as to manipulate it. Bitcoin's meteoric rise in 2017 may have been linked to this stablecoin: Tether tokens were created in batches, some as large as 200 million at a time, then most were moved to the exchange Bitfinex. Once Bitcoin prices drop, Tether tokens would be used to buy up Bitcoin in a coordinated effort and in order to drive the price of the leading cryptocurrency.
What Comes Next
It's difficult to say whether the proliferation of Tether across new blockchains will markedly shift volatility and risk in a market that is already seen as highly unstable. At the same time, for cryptocurrency enthusiasts hoping to see wider mainstream adoption of digital tokens, any additional uncertainty may delay those efforts.