Tether Stablecoin Scam Talk Picks Up After Sudden Drop in USDT/USD
Tether is the most controversial stablecoin in the crypto industry. Earlier this week, the reputation of Tether and its USDT token took another hit when the price of USDT suddenly dropped for no apparent reason.
The purpose of a stablecoin like the USD Tether (USDT) is to track the price of the USD. Tether claims to have an enormous stash of US Dollars hoarded in a bank vault somewhere, and those US Dollars are capable of backing up every USDT 1:1. Theoretically, that should mean that USDT should always be worth $1 because users can always cash out of their USDT whenever they like.
This past Tuesday, the USDT/USD pair dropped close to $0.95 across multiple cryptocurrency exchanges, creating a brief panic among investors.
Later that same day, a report appeared online on Noble Bank, Tether’s banking partner. The report suggested that the Puerto Rico-based bank was in poor financial health. That’s important for Tether because Bitfinex, one of the world’s largest cryptocurrency exchanges, once used Noble Bank as its fiat gateway.
Earlier this year, Noble Bank announced that it was listing itself for sale. Following that announcement, both Tether and Bitfinex – who are reportedly run at least partially by the same people – decided to end their partnership with the bank.
Meanwhile, Tether continues to refuse to do a financial audit. The company hired a law firm earlier this year to perform a non-financial audit. However, new reports that recently appeared online revealed another shocking conclusion: the law firm that they hired to perform the non-financial audit is linked directly with Tether, Noble Bank, and Bitfinex.
Bitfinex, Tether, and Noble Bank Are All Connected
There have always been questions about the connection between Bitfinex and Tether. A lawsuit last year revealed that Bitfinex and Tether have the same founder, for example. However, the connection between the stablecoin and the cryptocurrency exchange remains murky, and there’s a lack of transparency for everyone involved.
Now, there are more questions about the connections between Noble Bank, Tether, and Bitfinex. As NewsBTC.com reports earlier today,
“…an indirect connection between the founders of Noble Bank, Tether and BitFinex raised doubts whether the stablecoin project is legitimate or not.”
The connection isn’t hard to discover: it all links back to a man named Brock Pierce. Pierce is the founder of Noble Bank. He’s also the co-founder of Tether.
There’s another connection: Eugene Sullivan, who serves on the board of advisors of Noble Bank, is also the senior partner at Freeh Sporkin & Sullivan, a legal consultancy that famously audited Tether and Noble Bank.
Many Tether supporters point to the Freeh Sporkin & Sullivan audit report as proof that Tether is solvent. However, now it seems that the law firm had a huge conflict of interest when auditing Tether and Noble Bank.
These connections were all spotted by an independent blogger. That blogger, Bitfinex’ed, posted his conclusions in a Medium blog post earlier this month. Bitfinex’ed has also been actively outspoken against Tether and Bitfinex on Twitter, where he frequently advises people to withdraw all money from cryptocurrency exchanges that use Tether.
Other connections between Noble Bank, Tether, and Bitfinex, according to Bitfinex’ed, include John Betts, a partner of Sunlot Holdings and co-founder and CEO of Noble Bank. Sunlot Holdings is advised by Louis Freeh, co-founder of Freeh Sporkin & Sullivan.
Tether Has Not Had a Financial Audit, and Refuses to Perform a Financial Audit
Tether’s audit situation is a complete mess. The company initially hired a law firm called Friedman LLP to perform a financial audit of the company.
As Tether grew, however, the company decided to fire their financial auditor Friedman LLP, choosing to hire Freeh Sporkin & Sullivan to perform a “non-financial audit.” Meanwhile, Tether’s general counsel has dismissed the idea of performing a financial audit in the near future, saying bizarre things like:
“The barriers to getting audited are simply too big to overcome right now, and not just for us.”
Statements like this obviously don’t sit will with the crypto community. You have a company that claims to have $2 billion in a bank account somewhere. That $2 billion backs up all the USDT circulating on cryptocurrency exchanges today. Now, we have the company continuously refusing to do a financial audit because it’s “too hard”?
As NewsBTC.com explains, this all links back to problems with Noble Bank in Puerto Rico:
“ It has led the cryptocurrency community to believe that Tether is printing fake dollar bills in the form of USDT. According to them, Tether might not even have the money to back their USDT supplies, which is why they are willing to sell Noble Bank for a cost of $5-10 million. The bank itself came under the scrutiny of the Puerto Rican bank regulator last year, though the authorities never charged them publicly.”
There has always been a curious problem with Tether: if someone has $2 billion in cash, then why would they use that cash to back a digital token like the USDT? That money would lose thousands of dollars of value every day due to inflation when it could be making money elsewhere.
Conclusion: Tether is Most Likely a Scam
Ultimately, if you believe the information posted online by Bitfinex’ed and others, then all of this leads to a simple conclusion: Tether is a complete scam. That scam is being perpetuated by cryptocurrency exchanges like Bitfinex. It’s being supported by shady law firms like Freeh Sporkin & Sullivan. And it’s being masterminded by scam artists like Brock Pierce.
Of course, that’s just one explanation.
The other explanation is that there’s just a lot of smoke with no fire, and that the whole Tether controversy is overblown. The sudden, unexplained drop in the price of USDT on Tuesday, however, might be the biggest warning signal we’ve seen to date.