Tether, the company behind the USDT stablecoin, has released a document detailing its fiat holding to support the currency.
According to the report, prepared and issued by the company’s lawyers, Tether only has cash reserves to cover 74 percent of the USDT currently issued and circulating on the market–a severe dip in valuation for a ‘stablecoin’ which is supposed to be backed 1:1 with U.S. dollars.
Since the beginning of last week, Tether has been implicated in an ongoing series of allegations regarding Bitfinex. The New York Attorney General’s office filed a case against Bitfinex and Tether, who hold a close relationship and share overlap in leadership positions, accusing the cryptocurrency platform of using USDT funds to cover losses. According to the filing, Bitfinex took Tether funds that were reserved for backing the valuation of USDT to cover over $800 million in losses. The New York AG’s office made the claim that Bitfinex’s inappropriate use of Tether funds defrauds investors buying USDT with the assurance of a 1:1 backing with U.S. dollars, in addition to manipulating the marketplace for cryptocurrency.
Tether and Bitfinex responded by calling the allegations false. However, the most recent update appears to prove that Tether is no longer backing USDT with U.S. dollars, meaning that the stablecoin is only worth–in cash reserves–74 percent of its current valuation given the circulating supply. Tether has long been accused of foul play in regards to its exact backing of U.S. dollars, with many community members in cryptocurrency questioning whether the company held the billions in reserve to give USDT coins their $1 value.
Last year, in an effort to improve investor appearances, Tether made a show of changing banks and issuing a statement that at least appeared to confirm the 1:1 backing of USDT. However, in March 2019, discerning Reddit users noticed that Tether had quietly updated its official website to no longer reflect full dollar-backing of USDT. Instead, the policy claimed that USDT was backed by unspecified assets, despite retaining its historic 1 USD valuation.
Zoe Phillips, of law firm Morgan Lewis, posted the report on Tether’s fiat holdings as a part of the ongoing legal office involving the stablecoin company, Bitfinex and the New York Attorney General’s office. According to Philips,
“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.”
Phillips continued by pointing out the stable market price for Tether, despite recent allegations, as proof of investor confidence in the company and coin,
“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.”
Phillips appears to be making the claim that Tether is well-positioned to cover the entire valuation of circulating USDT, holding the majority of its valuation in cash and cash-equivalents, with the remaining gap being serviceable through the use of credit. However, as other publications have pointed out, Tether has historically positioned itself and the USDT stablecoin as a trusted currency fully backed 1:1 with U.S. dollars–not in cash equivalents or at 74 percent of the circulating supply. Investors have bought into Tether with the assumption that they are using a digital asset fully backed by U.S. dollars, and thereby giving the coin intrinsic value relative to the market.