Tether’s new take on the gold standard

Hello. Welcome to the FT Crypto Finance Newsletter. This week I take a look at Tether's new gold-backed stablecoin.

Tether is probably the most important cryptocurrency company in the world. Its USDT stablecoin is the world's largest with a market capitalization of approximately $113 billion, larger than the GDPs of Iceland and Luxembourg combined. In the first three months of this year, the company made a profit of $4.52 billion, outpacing Wall Street giant Goldman Sachs' profit of $4.1 billion.

This week Tether announced a new gold-backed stablecoin, to put it simply. This is the latest step in the company's expansion efforts and a new take on the gold standard.

The new token works as follows: Deposit fiat currency (minimum 50 troy ounces of gold, currently worth approximately $116,000) to the Tether Gold website. This is converted into a token, which Tether says is backed 1:1 by troy ounces of gold in the form of physical gold bars held in Switzerland.

According to CoinMarketCap, the token XAUT can be traded on cryptocurrency exchanges and has a current market capitalization of $576 million.

XAUT has been around since 2020. What’s new is that Tether can now use Tether Gold tokens as collateral for its new token, USDt. The company says the token remains exposed to gold and can be used for “digital transactions, payments, and money transfers in currencies as familiar as the US dollar.”

The new token will be overcollateralized by a gold-backed coin.

“If you deposit your Tether Gold into a smart contract and say it’s worth $100, you can mint up to $75 USDT and then use it as you see fit,” said Digital Co-Chairman Andrew O’Neill. explain. S&P Global Ratings Asset Research Institute.

In a short promotional video with questionable narration, Tether states that USDt is “the first Alloy by Tether product intended to track the value of the US dollar using Tether gold as collateral.”

O'Neill said Tether's risk disclosures make for “interesting” reading. They state that token holders have “no guarantee” that the custodian has adequate “or any” insurance on the physical gold reserves and that the gold reserves “will not be lost, damaged, stolen or There is a risk that it may be destroyed.

But the biggest risk to me is the idea of ​​a gold-backed digital dollar created by a company with limited transparency.

One experienced crypto founder told me this week that he was “really surprised” when he saw Tether’s announcement. “Basically what they've done is created a currency that goes back to the gold standard.”

At least one Tether employee agrees. One of them posted the announcement on LinkedIn with the caption, “(New) Gold Standard.”

“Even if U.S. inflation continues and the actual value of the U.S. dollar gets lower and lower, you still have this alternative pegged to gold. . . . Who cares what you call it? If it's pegged to the dollar and backed by gold, that's the best money you can make, and you just have to trust the other person to do it. It’s just a matter of whether there is,” said the founder. In the future, “a small number of semi-anonymous individual technologists could become the custodians of the world's most powerful currency.”

Let's take a short trip down memory lane as we ponder this dollar-fixed, gold-backed future. Money launderers, Hamas, and some Russian commodity companies are reportedly users of Tether. The company has never had an independent audit of its operations and, importantly, the reserves backing its stablecoins. CEO Paolo Ardoino blames top auditors for not accepting Tether.

For Tether, this is the latest step in its plans to expand beyond operating its namesake stablecoin. In April, the company officially organized into four divisions, marking an expansion beyond USDT into areas such as Bitcoin mining and market infrastructure. Ardoino said last week that his company's venture capital arm plans to invest $1 billion over the next year.

Tether's promotional video ends with the words, “Together, let's redefine stability.” It remains to be seen how stable the new digital assets will be, which will be used as collateral for even more digital assets.

Let us know what you think — email nikou.asgari@ft.com

weekly highlights

According to Fortune, the CFTC is investigating Market Maker Jump's cryptocurrency activities, including its trading and investments.

Bloomberg reports that Standard Chartered Bank will establish a cryptocurrency trading desk for Bitcoin and Ether.

Law professor Hilary Allen wrote about the dark side of tokenization in the FT, warning of the risks of bringing traditional assets onto public blockchains.

UK Financial Conduct Authority arrests two people on suspicion of operating a £1 billion illegal cryptocurrency exchange

This week's soundbite:

Martin Shkreli, the notorious “pharma bro” who was released from prison two years ago, is involved in cryptocurrencies. He claims to have co-created the Donald Trump memecoin DJT, which soared in value this week, with Trump's youngest son Barron.

Speaking at Twitter Spaces this week, he explained:

“It was the president's son. (It) seems like a good idea.”

And finally:

Yesterday was the summer solstice, the longest day of the year, and the official beginning of summer. Enjoy photos of celebrations from around the world. I hope you enjoy your first summer weekend of the year.

Crypto Finance is edited by Lawrence Fletcher. Click here to view previous editions of the newsletter.

Comments are welcome.