Tether has claimed that a hacker snatched nearly $31 million on November 19, 2017, a fact that sent Bitcoin's price tumbling down to $$7,818.50 from a high of $8,261.
For those unfamiliar with Tether, it is a controversial crypto-business that provides a wallet service allowing crypto exchanges to store and convert fiat currencies to "safe" tokens. Tether has a market cap of roughly $673 million and is the world's nineteenth largest cryptocurrency, based Coinmarketcap.com data.
"Yesterday, we discovered that funds were improperly removed from the Tether treasury wallet through malicious action by an external attacker," Tether said in a statement following the theft. "Tether integrators must take immediate action, as discussed below, to prevent further ecosystem disruption. $30,950,010 USDT was removed from the Tether Treasury wallet on November 19, 2017 and sent to an unauthorized bitcoin address."
"As Tether is the issuer of the USDT managed asset, we will not redeem any of the stolen tokens, and we are in the process of attempting token recovery to prevent them from entering the broader ecosystem," the company added. "The attacker is holding funds in the following address:16tg2RJuEPtZooy18Wxn2me2RhUdC94N7r. If you receive any USDT tokens from the above address, or from any downstream address that receives these tokens, do not accept them, as they have been flagged and will not be redeemable by Tether for USD."
Is Tether Toxic?
"The million (or billion) dollar question in the crypto world right now is whether Tether is toxic," said Aaron Lasher, co-founder and chief marketing officer of digital currency wallet Bread. "Tether is a synthetic version of the dollar, which can be sent peer-to-peer just like Bitcoin. However, in order to peg the value of Tether to the US Dollar, the Tether organization claims a fully backed 1:1 reserve of US dollar deposits to redeem Tether tokens and perform market making."
Lasher says that, if this claim is true, then Tether is solvent and has no problem with the $600 million worth of tokens floating around. However, if this is false, then Tether is at risk of being "broken" similar to how George Soros single-handedly decimated the British Pound in 1992.
"This would be accomplished through heavy shorting, forcing redemption of Tether for U.S. dollars until the reserve runs dry and the peg is snapped," Lasher said. "If Tether is 'snapped,' then the price of bitcoin should decrease at least in the short term, since much of Bitcoin's recent price appreciation has been led by the Tether/Bitcoin trading pair. At this time, nobody knows which bank or banks that Tether uses to store its USD balances, resulting in rampant speculation of fraud."
Lasher explains the original design of Tether actually maintained an unbacked mechanism by which new Tethers would be "printed" to depress the price if needed, and if the price went too low, Tether "bonds" would be issued, offering attractive interest rates to entice Tether owners to invest their tokens and pull liquidity off of the market if the price went too low.
"Of course this system is ridiculous at face value, since the remedy for both scenarios is to create more Tethers. So at some point they decided to migrate to a reserve mechanism -- which is, in theory, sustainable." says Lasher.
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