The question of whether or not stablecoins are exclusively backed by USD, is one that has cropped up again in the industry, after Tether published their new terms of service.
The new terms of service states that “traditional currency and cash equivalents and … other assets and receivables from loans made by Tether to third parties.” It is unclear at this point whether Tether’s USDT tokens are being backed by actual USD or some other form of traditional currency.
Newer stablecoins that have emerged as Tether’s competition in the market have been able to prove that their coins are actually backed by USD. As a result, Tether is now facing severe competition in the market in terms of market share and capitalization.
The home of the Tether site now reads,
“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”
The legal page of the company also states that the composition of the reserves which back the coins could be completely controlled and decided by Tether. It further added,
“Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves.”
There is a chance that this new terms of service may cause investors to lose trust in Tether and the security of their investments. That could fuel a pump and dump phase for USDT in the market.
Tether should now focus on trying to convince their investors that this shall not effect the company’s stability in any way.