The centralization of major cryptocurrencies is not a new thing. It has been happening in multiple forms ever since cryptos went mainstream, so we’ve learned to live with it. We’ve seen how Bitcoin’s hash rate is getting centralized among a few mining pools, but now an even more concerning metric has come to be known about Tether. According to a recent research report published by crypto market research firm Coin Metrics, Tether’s 80% supply is held by only 318 addresses.
The report of Coin Metrics was recently published by Bloomberg. According to it, Tether worth a million dollars is held by only 318 addresses. Given the important role that Tether plays in the cryptocurrency ecosystem, this is a window which can be exploited by someone to manipulate the markets. By comparison, in Bitcoin network whales control only 20% of global BTC supply. BTC worth a million dollars is also distributed between 20,000 addresses, which makes a 51% attack very difficult and expensive.
But perhaps the most interesting detail revealed by Coin Metrics is regarding role of exchanges in the Tether game. According to Coin Metrics co-founder Nic Carter, some major exchanges like Bitfinex and Binance may also be acting as Tether whales. And since Tether plays a major role in the trading of cryptocurrencies, these players can cause huge swings in the prices of Bitcoin and other cryptocurrencies too as per their needs. Here’s what University of Texas professor John Griffin said in this regard:
“The concentration of Tether suggests that control of Tether is in the hands of a few central players who can swing Bitcoin prices, and have a vested interest in doing so […] It also suggests that many exchange players have a vested interest in keeping the Tether game going.”
Another market researcher at TokenAnalyst, namely Sid Shekhar, also added that market concerns related to volatility come into play whenever a large sum of USDT is injected into markets. This co-relation has been observed by other analysts too, so we’re not too surprised about it.
This is yet another concern in the long list of concerns that people have had about Tether in its lifetime. There has already been a lot of noise about its fractional reserves, and at one point it also lost its one-to-one peg with the dollar. But despite all these controversies and concerns, Tether continues to grow. It will be interesting to see that for how long it can sustain this growth.