It is being reported that Tether has changed the way it provides surety for its tokens. Many users have noted these changes on Tether's website, adding further controversy for the stablecoin. Tether is a digital currency that is different than most others, such as Bitcoin. Instead of its price fluctuating based on supply and demand, its price is tied to the U.S. dollar, giving holders a sense of stability. Because of its very nature, Tether is supposed to keep a dollar in reserve for each token in circulation. The problem is that no third-party entity has ever audited Tether to ascertain whether it really has this currency in reserve. Holders of Tether simply must trust the company has the reserves, which has been a source of contention within the cryptocurrency community for some time. Currently, no one knows for certain exactly when Tether changed its reserve policy. But previously its website stated that every token was 100% backed by U.S. dollars. Now its website says that its tokens are backed by reserves that include both cash and "cash equivalents." The site further states that these reserves could also include "assets and receivables" that exist as a result of loans that they have made to other parties, which may include some that are affiliated with the company. Some industry experts, such as Tuur Demeester, who is a well known digital currency investor and analyst, believe that the language on the site is a clear indication that Tether is transitioning to a fractional reserve system. This would mean that Tether could in the future only keep only a small amount of dollars in reserve, which could lead to what is called a "bank run" if a large number of Tether holders attempt to redeem their tokens for actual dollars. This, in turn, could cause the entire currency to collapse. Tether, though, disputes that it is moving toward a fractional reserve system. Stuart Hoegner, who is the general counsel for Tether, still insists that the currency is 100% backed by reserves. At the same time, though, he said that the company still refuses to provide a third-party audit.
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