Digging into USDT and USDC terms of service: You may not have the right to redeem your stablecoins

Original source: Cointelegraph

Original compilation: PANews

Original source: Cointelegraph

Original compilation: PANews

Editor’s Note: The author of this article is Oleksii Konashevych, CEO of the Australian Institute of Digital Transformation. He proposed the concept of a new generation of property registration based on blockchain, and has made considerable achievements in the fields of law, science and technology.

In fact, reserves are an important indicator of the anchor value of a stablecoin. However, if the legal provisions of the stablecoin do not give the holders of the stablecoin the legal right to convert their on-chain assets into legal tender, is this indicator still meaningful?

USDT and USDC are the two stablecoins with the largest market value at present. The former is issued by Tether, and the latter is issued by Center Consortium, a joint venture between Coinbase and Circle. This article will focus on analyzing the terms of service of these two stablecoins, and the final result may be Contrary to many people's expectations.

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Tether StablecoinUSDT

In Article 3 of the USDT Stablecoin Terms of Service, Tether clearly stipulates:

"If any reserves held by Tether to support Tether Tokens are insufficiently liquid, unavailable or lost, it will cause delays in the redemption or withdrawal of Tether Tokens, and Tether reserves the right to delay the redemption or withdrawal of Tether Tokens. And Tether also reserves the right to redeem Tether Tokens in kind, including securities and other assets held in reserves. Regarding whether Tether Tokens previously traded through the website can be traded at any time in the future (if any), Tether makes no representations or warranties of any kind."

Obviously, the content of the above clause is difficult to understand. Let us now interpret the real intention of the clause.

Tether claims that the "valuation" of USDT is anchored 1:1 with the US dollar (note: it is a valuation), but it is not fully backed by legal tender, and they also wrote in the terms of service: "The Tether stablecoin used to support Reserve composition will be under Tether’s sole control and discretion.”

Digging into USDT and USDC terms of service: You may not have the right to redeem your stablecoins

In fact, Tether’s reserves have been appraised in the recent evaluation report released by the Federal Reserve Board of the United States, namely:

Digging into USDT and USDC terms of service: You may not have the right to redeem your stablecoins

Another thing to note is that only "verified Tether customers" are eligible to initiate stablecoin redemptions directly to Tether. Generally speaking, Tether's direct customers are cryptocurrency exchanges and other financial institutions, and end users basically exchange stablecoins through these "direct customers", not directly with Tether. However, Tether said that individual users can also open accounts directly at Tether, but only if they complete the KYC (know your customer) compliance process, which means that as long as they become Tether's "direct customers", they have the right to redeem stablecoins .

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Circle Stablecoin USDC

In the second article of the USDC terms of service, although Circle "promises to exchange 1 USDC for 1 US dollar", the bad news is that this rule only applies to Circle's partners, that is, cryptocurrency exchanges, financial companies and other institutions, Circle calls these "Type A users." For individual users, they cannot become Circle's "direct users" and exercise redemption rights, but can only become customers of Circle's partners (for example, you need to go to a cryptocurrency exchange to open an account).

What's even more "scary" is that in Article 13 of the USDC terms of service, it even clearly states that "Circle does not guarantee that the value of 1 USDC is always equal to 1 US dollar, because Circle cannot control how third parties quote or share USDC", which means that Circle It does not force its partners (such as cryptocurrency exchanges and financial institutions) to propose other specific terms to their end users. Moreover, Circle also stated that "they are not responsible for any potential losses or other issues caused by fluctuations in the value of USDC."

Summary: The rights of stablecoin issuers and users are not equal

Digging into USDT and USDC terms of service: You may not have the right to redeem your stablecoins

From a legal perspective, neither Tether’s stablecoin USDT nor Circle’s stablecoin USDC are equivalent to legal tender. Not only that, the reserves that Tether and Circle claim to ensure 1:1 value are not fully pegged to fiat currencies, they back their stablecoins with various assets (such as securities) that will eventually depreciate and give stability The liquidity of the currency is causing trouble.