Around 300 different addresses control nearly 80 percent of the total supply of Tether. While this isn’t too surprising given the shady nature of the king of stablecoins, this concentration could be explained by mass hoarding by exchanges to supply liquidity on their platforms. Without doubt Bitfinex accounts for a huge portion of the total supply, as reported by Bloomberg on August 8, 2019.
Tethered to a Few Entities
People don’t seem to realize just how concentrated the world of cryptocurrency is. According to Coin Metrics, the Tether concentration is dominated by whales who are likely to be exchanges and market makers.
Tether has been drowning in controversy since its launch in 2015 but has served its purpose as a way to give traders a hedge against cryptocurrency volatility.
Earlier this year, the New York Attorney General accused iFinex Ltd, the parent of Bitfinex and Tether, of printing the stablecoin and transferring it to Bitfinex to conceal the loss of customers funds. This along with the shadow banking allegations have further dented their reputation within the industry.
This concentration of Tether poses a larger risk, as it means that these select few entities are in some way in charge of Bitcoin’s price swings. John Griffin, a professor at UT Austin, believes exchanges have a mutual benefit from keeping Tether in the game.
Tether was linked to the 2017 bubble with many believing it was an artificial pump up caused by Tether that was later fuelled by retail investors.
In recent times, the majority of Tether issuance has moved from the OMNI chain to Ethereum.
Distribution is a Core Issue
In general, cryptocurrency has distribution issues as large amounts tend to get concentrated with founders, advisors, and financial behemoths.
This debate is the core of the Proof of Work (PoW) versus Proof of Stake (PoS) argument. PoW proponents believe that the distribution model for incoming supply is perfect as it rewards those who do work rather than those who are influential or prominent in the community.
On the other hand, Proof of Stake rewards coins to those who have the financial capacity to purchase and stake a large number of coins. Proof of Stake on ETH 2.0 has a minimum requirement of 32 ETH – which is $7,200 at the time of writing.
The argument against Proof of Stake is coherent but has many flaws as it discounts the fact that it rewards those who have some degree of skin in the game.