Tether sets fire to 500 million USDT cryptocurrency coins
Tether has announced the destruction of 500 million Tether coins (USDT).
The cryptocurrency issuer said this week that "Tether has redeemed a significant amount of USDT from the circulating supply of tokens."
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"In line with this, Tether will destroy 500m USDT from the Tether treasury wallet and will leave the remaining USDT (approx 466m) in the wallet as a preparatory measures for future USDT issuances," the company added.
Tether said that the coin reserve's destruction, which is a move not often seen in the cryptocurrency space, is in line with the Tether white paper (.PDF).
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The paper claims that each token is backed by a US dollar on a one-to-one ratio. Fiat backing deems the virtual asset a "stablecoin." Tether acts as a reserve for fiat currency, which means the cryptocurrency cannot be fully decentralized.
In order to keep the 1:1 ratio, the white paper says that Tether will "send fiat withdrawals and revoke the corresponding Tethers" as necessary. The steps are described below:
- User deposits fiat currency into Tether Limited's bank account.
- Tether Ltd generates and credits the user's tether account. Tethers enter circulation. Amount of fiat currency deposited by user = amount of Tethers issued to user (i.e. 10k USD deposited = 10k Tether USD issued)
- Users transact with Tethers. The user can transfer, exchange, and store Tether coins.
- The user deposits Tethers with Tether Ltd for redemption into fiat currency.
- Tether Ltd destroys the Tethers and sends fiat currency to the user's bank account.
"The main concept is that Tether Ltd is the only party who can issue Tethers into circulation (create them) or take them out of circulation (destroy them)," the paper reads. "This is the main process by which the system solvency is maintained."
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The coin is distributed on the Bitcoin blockchain via the Omni Layer protocol and is generally intended to act as a substitute for the US dollar and wire transfers.
As noted by Coin Desk, USDT started to slip below $1.00 from October 14. Bitfinex, which has a hand in management at Tether, withdrew 630 million USDT from circulation on October 22 to bump up the price.
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The price of USDT is currently circulating at just under a dollar, $0.99.
Speaking to Coin Desk, Bitfinex director of communications Kasper Rasmussen said that Tether is not intentionally scaling back supply, but rather that USDT is redeemed "when the amount circulating exceeds the amount required for e.g. Bitfinex or Tether to operate."