Tether must go bare – danger for Bitcoin?

Tether must go bare – danger for Bitcoin?

Is the Stablecoin Tether (USDT) really backed by enough reserves? This question has been hanging over the crypto space like a sword of Damocles for quite some time. But soon there could be final clarity on this.

It is not only the central banks that have been running the money printing machines at full speed in 2020. Tether Limited, the issuer of the stablecoin Tether, also created more USDT tokens last year than ever before. Critics of the stablecoin question whether every USDT is really backed 1:1 by Tether Limited’s reserve. But soon there could be final clarity about Tether’s financial situation: On 15 January, Tether and iFinex, operator of the Bitcoin exchange Bitfinex, had to allow the Bitcoin Lifestyle New York Office of the Attorney General (OAG) to look at their books. Both companies are subsidiaries of DigFinex Inc. There are also overlaps in the executive suite.

Tether and Bitfinex in the crosshairs of the New York Attorney General’s Office

The OAG, then still headed by Barbara Underwood, has had Bitfinex and Tether in its sights since 2018. The investigation centres on allegations that the sister companies committed criminal offences under Article 23-A of the New York Commercial Code. The article concerns „Deceptive practices with respect to stocks, bonds and other securities“.

Since 1 January 2019, Underwood’s successor Letitia James has been charged with the Bitfinex/Tether causa

At the end of April 2019, she filed the petition to bring a public lawsuit against iFinex in the New York Supreme Court. The allegation: Bitfinex allegedly borrowed over 850 million US dollars from Tether in 2018 in secret to cover up a liquidity shortage. Numerous Bitfinex customers complained of problems withdrawing funds at the time. This in turn had fuelled rumours about an insolvency of the Bitcoin exchange.

This was accompanied by a request to Bitfinex and Tether to send all relevant documents, including financial flows between the companies, to the OAG. In addition, the OAG issued an interim injunction prohibiting Bitfinex and Tether from further transactions with each other until further notice. In doing so, the OAG relied on paragraphs 352-353 („Martin Act“) in Article 23-A. These grant the public prosecutor’s office considerable leeway in its investigations. This includes, among other things, the power to request from suspects any information needed to clarify an allegation.