Tether (USDT) Circulation 74% Backed by Dollars Says Tether Lawyer
After opening a credit line to Bitfinex, Tether Inc. has announced it practices a form of fractional reserve liquidity.
Tether (USDT), the biggest source of liquidity on the cryptocurrency markets, is resembling a fractional reserve operation, as each coin is not backed one-on-one by dollars. By the latest admission of Tether Inc., the ratio of backing by fiat in a bank is 74%.
“As of the date I am signing this affidavit, Tether has cash and cash equivalents (short term securities) on hand totaling approximately $2.1 billion, representing approximately 74 percent of the current outstanding tethers,” wrote Stuart Hoegner, a lawyer for Tether, in a recent affidavit.
Based on those reserves, Hoegner claims that user funds are not at risk. However, in the past, doubts that Tether was holding dollar backing for each USDT in circulation have caused a run of selling USDT, and a crash of the dollar peg. USDT went as low as $0.85 in October 2018, when doubts about Tether’s solvency made traders attempt to liquidate for US dollars.
Already at the beginning of March Tether had announced that the USDT digital coin did not have full backing - but the exact size and fraction of credit lines was unknown. Now, the size of the backing suggests that newly printed USDT may have been used to cover up for a loss of funds on the side of Bitfinex.
The New York Attorney General suggested that Bitfinex was using Tether to cover for the lockdown or loss of $850 million. Currently, the mismatch between reserves and coins in circulation is of a similar size to the sum lost. Additionally, a document surfaced based on an agreement for a loan to Bitfinex, for the amount of $900 million.
The debacles around Tether and Bitfinex led to a delay in the TRON USDT reward program, as announced by TRON co-founder and CEO Justin Sun:
Beyond the alleged fractional backing, the situation surrounding the banking services for Bitfinex and Tether is still unclear. At best, the exchange and the USDT issuer may be using highly risky approaches to banking, which may lead to the seizure or loss of funds. In a recent action by the New York Department of Justice, arrests were made in connection to a large-scale dark banking scheme.
The arrests of Reginald Fowler and Ravid Yosef were linked to services for numerous crypto exchanges, not exclusively to Bitfinex. In the past, Bitfinex and Tether have lost their banking services by numerous counterparties.