Tether is back in the news again, this time because someone stole $31 million dollars from the Tether treasury. This is also a good time more generally to talk about the best approach if you want a price stable cryptocurrency.
Tether got “sort of” hacked for $31 million. Tether, if you don’t know is a cryptocurrency built on the Omni protocol, see OmniLayer.org. Omni Layer is a toolbox that can allow you to create new tokens on the Bitcoin blockchain.
We’re so used to tokens being built on Etherium, we forget that this started out as something you could do on Bitcoin. The benefit being you inherit all of the security and all of the compatibility of Bitcoin network except you get to create your own custom token – cool.
Now Tether, “Digital money for the digital age” is designed to be a price stable token, meaning, 1 USDT should always be worth 1 US Dollar. That is achieved by the Tether corporation, keeping a minimum of $1 US dollar in their real US dollar bank account for every 1 USDT token that exists, right? Pretty simple idea.
One token for every 1 US dollar they hold.
The obvious question right after the, actually one that keeps coming up is, how do we know Tether Corporation has enough US dollars in the bank to support the Tokens they are issuing?
Although that is not the subject of today’s post, you can go back in our previous articles on the last time Tether issued their last audit and the results of that audit were they did in-fact have enough dollars on hand in correlation with Tether tokens.
The reason why Tether is back on the news again today, is not because of their audit controversy, although that has come up again, but due to the recent announcement by Tether of “a bit of a hack.” The issuing statement released:
Tether Critical Announcement
“We discovered that funds were improperly removed from the Tether treasury wallet through malicious action by an external attacker.”
Now because Tether is a token on the Bitcoin network, all transfers are public and you’re able to track them over the public blockchain network. That means they know the address these funds have been transferred too.
Their proposed solutions so far are:
- All platforms that make sure of the Tether tokens should update their software, specifically their Omni software to a tweaked version that basically freezes these funds. Meaning those Tether tokens cannot be transferred.
- The second thing they are going to do, is they are going to refuse to redeem any of these stolen tokens if anyone tries to redeem these USDT tokens for US dollars in the bank.So that makes those specific stolen tokens worthless, which also means Tether tokens are not necessarily fundgeable, meaning not every Tether token is equal. So you have a bunch of Tether tokens now that is not the same value as everything else and you have a bunch of Tether tokens that have been stolen that is worthless while the some still worth a dollar.
That’s the broken fundgability right there.
- The third thing is, they’re working with the Omni foundation to figure out a way to possibly get these funds back. They’re thinking about doing an Etherium style clawback of the funds, kind of like when the DOW was drained all of the investors’ funds and Etheriums protocol rollback, which was a controversial thing anyway.
Now whichever way you slice this, it seriously erodes the credibility of the Tether token, if it wasn’t already eroding anyway. That’s even before we start to include the controversy around the number of US dollars backing it.
What is not clear to me, and maybe you techies can help me out below, I’m not sure if this was a flaw in the Omni protocol that Tether was using to create their actual tokens, or if it was Tethers implementation as a security flaw.
In the announcement they released, Tether didn’t give much of an indication on whether the security hole was, supposedly it was more likely to be a flaw in Tethers implementation because if it was a problem with the Omni protocol, then all tokens would be affected, right? There was no mention of that, and if Tether could rightfully blame Omni for this, I’m sure they would have done so.
In conclusion, I understand the appeal of Tether. While the price of digital assets is still unstable, this is how people are able to make returns that are just out of this world. The other side of that though is the need for certainty or stability, even if it’s for a short amount of time.
Sometimes we want to just step out of the market and sit on the bench for a rest before getting back in the game. The ongoing question is, where is the best place to go for stability? We discussed the options today like Tether or other price table assets like on Coinjolt.com and we also have the option to move the currencies back onto Fiat currency of course.