Tether is the biggest controversy in crypto right now. But Joseph Lubin, cofounder of Ethereum, does not buy the accusations against Tether.
Tether is a “stablecoin” pegged to the value of the U.S. dollar. Tether tokens are meant to be a way for investors or vendors to get out of bitcoin by exchanging it for tether. The price of tether has stayed at or right near $1 for its lifetime.
But accusations have swirled around the company, Tether, which claims all tethers are backed by U.S. dollars held in bank accounts, but will not publicly identify its banks. In December 2017, the CFTC subpoenaed Tether and Bitfinex, a huge bitcoin exchange that began offering tether in 2015; the two companies share a CEO. In May, the U.S. Department of Justice, working with the CFTC, launched a criminal investigation into manipulation of bitcoin prices. And in June, a University of Texas research paper concluded that the run-up in price of bitcoin at the end of 2017 was mostly due to manipulation of tether.
To quell the doubts around its reserves, Tether tapped former FBI director Louis Freeh and his D.C. law firm Freeh, Sporkin & Sullivan, to conduct an investigation of its compliance, including a check of its bank balances. Freeh’s firm found that on June 1, Tether indeed held $2.545 billion in two banks, enough to match all tethers in reserve, plus a $7 million cushion. Tether publicly posted the Freeh report in June, but the many vocal skeptics were not satisfied.
In August, the Wall Street Journal highlighted the “opaque way in which tethers are created,” which intensified scrutiny of Tether. Many cryptocurrency enthusiasts and onlookers are convinced the company is an elaborate scam.
Joseph Lubin doesn’t agree.
“Tether’s an interesting project,” Lubin told Yahoo Finance on our Final Round show on Tuesday. “Based on our analysis, which involves just talking to a bunch of people in the space, we do believe that tethers are backed 1 to 1 by U.S. dollars in bank accounts… With respect to market manipulations, I’m not sure that market manipulations are related to Tether directly, if they do exist.”
Lubin, whose company Consensys is developing decentralized apps built on blockchain, is one of the more respected veterans in the crypto space. Ethereum, which he cofounded, is a smart contracts platform and the vehicle for most initial coin offerings (ICOs). The native token of Ethereum, ether, is the No. 2 cryptocurrency by market cap, though its price has fallen 70% in 2018.
Lubin’s apparent defense of Tether may surprise those who are convinced that the token, and the company behind it, are in some way fraudulent. Or it may carry some weight with the skeptics.
But Lubin also cautioned about Tether, “It’s still not 100% solid in terms of a story, from my perspective. I expect many other price stable tokens will arise and take its place.”
As for the current cryptocurrency correction, with all the major coins seeing big drops in 2018 so far (especially ether), Lubin predicts, “I think there’ll be a series of irrationally exuberant price spikes up, followed by corrections, probably… Each spike will, I believe, bring in a wave of new activity and bring fundamental infrastructure to the ecosystem.”