Tether Stablecoin Only Has 74% of USDT Backed by Cash and Fiat Equivalents, Says Legal Counsel
Tether has been experiencing some major negative attention lately after rumors started circulating about how the stablecoin is actually backed.
However, it looks like Tether’s general counsel is coming out of the woodwork with a little more honesty, as he has confirmed that there is 74% of the stablecoin’s liquidity that is backed by fiat equivalents, according to reports on April 30th.
Right now, Tether holds about $2.1 billion, divided between cash and short-term securities. The company wrote Stuart Hoegner, its general counsel, this Tuesday. Tether shares the counsel with Bitfinex, which has both owners and executives overlapping between the two platforms.
At the center of the allegations is the New York Attorney General, saying that $600 million was borrowed by Bitfinex against Tether. This loan occurred after an alleged loss of $850 million with a currency converter.
Last week, Hoegner filed an affidavit that supports an Order to Show Cause against the lawsuit of NYAG. Keeping the current order in place would force certain documents to be made available by Bitfinex and Tether by May 3rd.
Hoegner noted that the USDT stablecoin is no longer supported 100% by cash or liquid assets. As of April 30th, he signed the affidavit to show that the total on-hand liquidity is $2.1 billion. As of press time, according to Omni Explorer, there are 2.8 billion USDT tokens issued to the public.
Another one of Tether’s attorneys, Zoe Phillips of Morgan Lewis, wrote up a memorandum of law, which supports the order that the company issued to show cause.
In the memorandum, Phillips demonstrated how it is unnecessary for Tether to hold $1 for every tether. She added that “the line of credit needed to be frozen because it improperly impairs the reserves Tether would use for redemptions.” Furthermore, she said that the belief that this ratio must be held is “wrong on multiple levels.” Another source of issues has to do with the agreements of Tether and Bitfinex, which Phillips says was:
“negotiated on an arm’s length basis on commercially reasonable terms.”
While Phillips states that the companies were represented independently, but a major Bitfinex critic on Twitter pointed out that Giancarlo Devasini signed both agreements. Still, Hoegner continued to back up Phillips’ statements.
According to Hoegner, the lending agreements between Bitfinex and Tether were established in the name of protection in the crypto market. He wrote that the holders of this stablecoin “have a keen interest” in the fact that at least one of these trading platforms has enough liquidity to maintain operation.
He said that creating a disruption in Bitfinex’s operation would directly impact Tether as well.
At this point, there has been no reply from Hoegner to CoinDesk’s request for comment. View the full affidavit here: https://www.scribd.com/document/408190972/Stuart-Hoegner-Affidavit-4-30