Tether faces new problems over use of funds
The company’s treasury questionably moves a substantial amount of money
Tether, the organization behind the Tether (USDT) stablecoin, has come under fire recently for a number of reasons and it doesn’t seem to be doing itself any more favors. The firm, which is closely tied to the Bitfinex cryptocurrency exchange, reportedly helped the exchange out of a financial bind worth $850 million and could have possibly also helped to illegally cover up the losses. That activity led to a lawsuit being filed by the New York Attorney General’s (AG) office against Bitfinex and Tether, and the case continues to produce revelations that must have investors becoming more than a little concerned. The latest to surface is that Tether’s treasury has moved $5 million in Tether to an unknown wallet.
According to a tweet by “Whale Alert,” Tether moved 4,994,990 USDT yesterday. Given the company’s recent history of questionable dealings, moving such a large amount to an unknown wallet is more than a little unsettling.
Couple this with the fact that the USDT market cap has increased $300 million – from $2.6 billion to $2.9 billion – and things become even more muddled. For the market cap to have increased, Tether must have minted more stablecoins. The question, though, is why it would need to since there wasn’t a public call for more coins. According to Twitter user Giancarlo Potter, “Tether just keeps pumping ’em out – ten million more ETH [Tethers], too. Bitfinex gets a 10 for attitude and a 0 for logic.”
Through the court case, documents have surfaced that Tether is no longer pegged to the US dollar on a one-to-one basis as previously advertised. This in itself is a breach in financial securities laws and will have its own repercussions. Tether has said that the tokens are now backed by dollars and “reserves,” which severely changes the entire stablecoin panorama. According to a lawyer working for Bitfinex, Tether has invested a portion of those reserves in Bitcoin (BTC) and states, “[P]rior to the April 24th [New York Attorney General] order … Tether actually did invest in instruments beyond cash and cash equivalents, including bitcoin, they bought bitcoin.” He further offered that Tether made “other investments, including purchasing other assets.”
Stablecoins were meant to overcome the issue of volatility seen with digital currencies. Therefore, for Tether to invest in BTC makes little sense. The judge presiding over the case, Joel M. Cohen, recognizes this, as well, and asked the lawyer, “Tether sounded to me like sort of the calm in the storm of cryptocurrency trading. And so if Tether is backed by bitcoin, how is that consistent? If some of your assets are in a volatile currency that Tether is supposed to somehow modulate, that seems like it’s playing into what they are saying.”
Those are very good points and the judge isn’t the only one who would like for Tether to provide a logical response.