David Yaffe-Bellany (Circuits)
SAN FRANCISCO — Cryptocurrency prices are plummeting. A so-called stablecoin lost all its value in a matter of days. A new-fangled crypto bank halted withdrawals. And investors have been plunged into financial ruin.
Now the crypto industry is grappling with an even grimmer prospect: The worst may be yet to come.
Concern is mounting over another potential vulnerability in the crypto market: Tether, a company whose namesake currency is a linchpin of crypto trading worldwide. Long one of the most scrutinized companies in the industry, Tether is facing heightened pressure from regulators, investors, economists and growing legions of sceptics, who argue it could be another domino to fall in an even bigger crash.
“Tether is really the lifeblood of the crypto ecosystem,” said Hilary Allen, a finance expert at American University. “If it imploded, then the entire facade falls down.”
Tether is the dominant issuer of stablecoins, a type of cryptocurrency pegged to a stable asset such as the US Dollar. Unlike traditional cryptocurrencies such as Bitcoin and Ether, whose monetary value can fluctuate widely, stablecoins are typically designed to maintain a constant price of $1 and are backed by large reserves of funds or other financial engineering. That consistency allows crypto traders to conduct safe, predictable transactions without relying on banks or other financial gatekeepers.
But many of these coins are stable in name only. Last month, when cryptocurrencies melted down, the crash was triggered partly by the failure of TerraUSD, a stablecoin with a $1 peg that was algorithmically linked to a sister cryptocurrency called Luna. When the price of Luna plummeted, TerraUSD also fell, creating a “death
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