Tether, the largest issuer of stablecoins by market capitalization, i.e., those crypto assets pegged to a stable reserve asset, has added its offshore Chinese yuan (CNHT) to the Tron network.
The news is only a few hours old, so soon CNHT will be available on the Tron blockchain. In addition, using the very transport layer of Tron’s blockchain, Bitfinex will be the first exchange to allow users to deposit and withdraw the new Chinese Yuan Stablecoin (CNHT) during launch.
Tether’s CNHT debuts on Tron: initially only ERC-20
CNHT was founded in 2019 and is linked to the offshore Chinese Yuan (CNH). Today, with the debut of CNHT on Tron, the blockchain will become the second on which it will be possible to buy, trade, and hold CNHT. Initially, though, it will only be available as an ERC-20 token on the Ethereum network.
Commenting on the new announcement, Tether‘s CTO, Paolo Ardoino, expressed his enthusiasm for the introduction of CNHT into the Tron ecosystem stating:
“At a time when the cryptocurrency market is experiencing massive turmoil, we believe the best way forward is to keep building. Things are business as usual at Tether and we hope our continued growth and expansion inspires others to keep moving forward as well.”
With CNHT now on both Ethereum and Tron, there is now a new addition to Tether’s growing family of stablecoins. As anticipated, stablecoins are particular types of cryptocurrencies pegged to a stable reserve asset. Thus, they tend to be characterized by having low volatility.
Tether’s stablecoins, preceding CNHT, include others pegged to the US dollar (USDT), Euro (EURT), and Peso (MXNT).
Problems for Tether’s stablecoins: let’s see why
Despite Tether’s continued commitment to expansion and security, unfortunately the popular crypto has been increasingly the target of severe criticism for several years now. Indeed, the company has often been accused of minting stablecoin tokens out of thin air to influence cryptocurrency markets.
Recently, Tether co-founder Reeve Collins refuted the incriminating claims by stating that Tether maintains its reserves, as can be seen from the proof of reserves posted on their official website.
Furthermore, he stated:
“I sold the business in late 2015 and the principles continue to keep it running and, in my view, to the best of their ability, coupled with the best risk mitigation tactics in the industry. Tether has stood the test of time.”
Proof of Reserve: another consequence of FTX’s failure
The phrase “Proof of Reserve” came about as a result of the failure of the cryptocurrency exchange FTX. According to statements made on 9 November by Changpeng Zhao, the CEO of Binance, all cryptocurrency exchanges should be running the Merkle-tree proof of reserve.
Indeed, CZ says that banks operate with fractional reserves, while cryptocurrency exchanges do not. This is why Binance was the first to state that it would soon begin reserve testing to maintain full transparency for the benefit of its users.
Proof of reserve, also known as PoR, is a refutable verification process that contributes to greater transparency for centrally managed cryptocurrency reserves. In fact, PoR verifies the fund reserves of a centralized platform using cryptographic proofs and verifies the legitimacy of public wallet entries and routine third-party audits.
Thus, customers can use this information to determine whether the platform is in a sound financial position and whether their deposits can be matched. However, despite the fact that PoR uses blockchain technology, it still relies on the accuracy of accounting processes and off-chain asset valuation.
How PoR works and why it is so important in the crypto world
In any case, proof of reserves (PoR) is an independent audit performed by a third party to confirm that a custodian actually holds the assets it represents to its clients as in possession. This auditor compiles all balances held in a Merkle tree using an anonymous snapshot of them.
Specifically, a Merkle is a cryptographic commitment scheme in which the cryptographic hash of each “leaf” or node is identified. These are mainly used to check data that has been handled, sent or stored between computers. Despite being created in 1979, the idea is still widely used in peer-to-peer blockchain networks.
The auditor then obtains a Merkle root, which is a cryptographic fingerprint used to identify the particular combination of balances at the time the snapshot was taken.
At that point, the auditor collects digital signatures created by the cryptocurrency exchange that attest to who has control of on-chain addresses with publicly accessible balances. Finally, the auditor does a comparison and checks whether these balances are greater than or equal to the customer balances shown in the Merkle tree.
The PoR method made sense and was praised by many in the cryptographic community because it seemed to be a step toward a more transparent cryptographic ecosystem. Using transaction records and specific assets held, centralized exchanges could record the liabilities of each account.
In general, the effects of the demise of FTX have prompted calls for tighter regulatory oversight of the cryptocurrency market. As major market participants continue to provide some transparency in an effort to regain public trust, experts believe that proof of reserves alone cannot be relied upon.