The controversy behind USD stablecoin Tether (USDT) intensifies as the company’s lawyers confirmed in documents released on April 30, that Tether only has enough cash to back three-quarters of its increasing supply
As part of an ongoing legal process, it was revealed by the New York Attorney General, Zoe Phillips of law firm Morgan Lewis that at the time of writing, 74% of Tether’s reserves had USD and equivalent backing. The reported figures fall short of the promises made by the Tether executives.
As per them, every USDT token had full fiat backing, bank statements confirming the same was presented in December last year. Phillips wrote in the report:
“In fact, Tether’s reserves of cash and cash equivalents alone (without the line of credit) would cover approximately 74 percent of the outstanding amount of tether.”
The Mystery of Bitfinex
The current legal issue has stemmed from the claims that Bitfinex, a cryptocurrency exchange that shares its CEO with Tether have had employed Tether’s reserves to cover its to cover $850 Million loss, allegedly caused due to problematic outsourcing agreement earlier in 2018.
Notably, as per claims both Bitfinex and Tether are in the process of refuting, mark the latest in a series of issues both companies have faced regarding the transparency of their operations. For instance, Bitfinex has had faced accusations that it was insolvent, which it publicly denied. Complicating the matters further a recent report asserted that Bitfinex withdrew $89 Million from its cold wallet.
Though Tether’s current reserve ratio does not pose as a problem in the eyes of Phillips, her language runs in sharp contrast to a project which previously marketed itself as the antithesis of fiat-based fractional reserve banking. Phillips stated:
“This sort of ‘fractional’ reserving arrangement is similar to how commercial banks work. No bank holds in liquid cash more than a small percentage of depositors’ money. The funds are invested. The markets clearly remain confident in tether, as it currently trades just shy of $1 dollar per U.S. Dollar tether — even after the Attorney General’s highly inflammatory and misleading public application. Any suggestion that tether holders face liquidity risk is unsupported speculation.”
According to an affidavit seen by cryptocurrency news outlet CoinDesk, Stuart Hoegner, general counsel for Tether and Bitfinex, corroborated the 74% backing figure.
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