All indications are that the market’s faith in Tether (USDT) is waning. This follows a series of reports which seem to put doubt the long-held assertion that the virtual currency is backed by hard United States’ dollars which are held in trust. While this is not the first time that doubts are being expressed over this claim, what seems to be fueling them are reports that the firm behind Tether has parted ways with its auditors.

In the recent past the supply of the cryptocurrency has increased more than four times as it was only in the recent past that the tokens in circulation were less than 500 million but are now more than 2.2 billion. The purpose of the audit was to inject confidence back in the virtual currency following speculation that un-backed tokens were being printed. Due to all the speculation swirling around, the virtual currency is no longer able to remain pegged to the dollar consequently.

Main exchanges

The reason why being pegged to the dollar matters is because most of the main exchanges have been using Tether rather than dollars as the base currency for the trading pairs of crypto currencies. This is to avoid regulations that have to do with money transmission and the like. An example of this is Polonex where Bitcoin (BTC) is traded against Tether rather than U.S. dollars. For new traders they might not even notice the difference but a problem occurs when peg completely breaks.

However it is too soon to conclude whether breaking of the peg is permanent but it is worth considering the implications of the peg becoming completely unmoored. If that were to happen one scenario that would unfold would be holders of Tether fleeing the virtual currency in droves. This would be the equivalent of ‘a run on the bank’ in the traditional banking system. With the exchanges strained as the virtual currency is dumped, the result would be some of the exchanges collapsing.

Doomsday scenarios

But Tether could also choose to fight back and decide to defend the peg resulting in the squeezing of shorts. Though those are the doomsday scenarios it is also possible that all the Tether tokens that have been issued are backed by the U.S. dollar and that all the speculation is baseless.