Market observers are speculating about a run on Tether as its price is nearing $0.92 on Kraken after trading for less than $0.99 for a week. If the situation continues to degrade, the collapse of the so-called stablecoin could follow, industry insiders say. And the risk that poses to the value of other cryptocurrencies, a concern expressed about Tether for some time, could come to fruition. Tether plays an important role in the cryptocurrency ecosystem: it makes up about 98% of all the stablecoin volumes and accounts for approximately 92% of all stablecoins in circulation.
Tether was created on a simple premise of issuing tokens that will always be redeemable for U.S. dollars. The company, affiliated with Bitfinex, promises to hold the corresponding reserves in bank accounts subject to frequent professional audits. In January, Tether dissolved its relationship with audit firm Friedman LLP and in July, Tether released a report by a law firm Freeh, Sporkin & Sullivan LLP attesting to USD reserves held on just a single day. Tether’s general counsel told Bloomberg: “The bottom line is an audit cannot be obtained. The big four firms are anathema to that level of risk.”
Most recently, Tether was banking with Noble Bank of Puerto Rico but the relationship has since dissolved. Two weeks ago, The Block reported that Noble has been operating with a skeleton crew and that it only has so many days until it goes into bankruptcy. Tether is rumored to have struck a banking relationship with Deltec Bank based in The Bahamas. However, it is still unclear at which bank Tether is currently holding its reserves. Over the past several days, concerns over its banking relationships as well as new stablecoin alternatives have led traders to lose confidence and push the price lower.