Three Lawyers Weigh In On The Puzzling Tether (USDT) Letter, Leaving Many Questions
Anyone that follows the news of Tether has heard of the rumors, only a few weeks ago, that they would be moving to Puerto Rico’s Deltec Bank. Though they maintained silence for a while, as did Deltec, a recent Twitter post “revealed” that the company had, in fact, moved their funds to Deltec. It would be simple if that was the end of the discussion but, alas, it was not.
We are pleased to be able to confirm that Tether has an account with Deltec Bank & Trust Limited https://t.co/LSn64soUsC . Balance confirmation at 2018-10-31 attached.
— Tether (@Tether_to) November 1, 2018
The lack of audit would have been enough to keep the debate going over the validity of the document, if that document had provided any real details that could be validated. However, with less than 100 words and no way to determine who actually signed the document, Twitter users tore it to digital shreds. Even the wispy signature, was ultimately reduced to a meme and a joke.
The goal of the letter, which it clearly did not reach, was to provide security and faith to Tether users to confirm the rumors that the company would have enough liquidity in their new Deltec account to keep their 1:1 ratio, which recently dropped. The letter allegedly “confirm[ed] that, at the close of business on October 31, 2018, the portfolio cash value of your account with our bank was US$1,831,322,828.” The amount given is several million dollars more than what CoinMarketCap reports, and Deltec has still, at of the time of writing, provided no confirmation of the letter.
The part of the letter than seemed to ruffle some feathers is the fact that the writer specifically states that it is,
“provided without any liability, however arising, on the part of Deltec Bank & Trust Limited, its officers, directors, employees, and shareholders, and is solely based on the information currently in our possession.”
CoinDesk Consulted With Three Different Lawyers
Preston Byrne, who works for Tomram LLC as a tech consultant, said that the disclaimer reminded him of a UK legal case over 50 years ago. In this case, the House of Lords wrote a similarly-worded statement saying that it could not take responsibility for what transpired after the letter was sent.
“Hedley Byrne is an English case concerning the inadvertent assumption of liability by a bank to a third party as a result of public statements made by the bank to a third party, and the effectiveness of a disclaimer in discharging any obligations that bank might owe to that third party as a result of those statements.”
Matthew Gertler, a new attorney to Reserve, added,
“Is the case relevant? To an extent, but the bank does not have a fiduciary relationship with anyone but Tether.”
Even though Tether published this letter with the intent to show the public their validity, it should not be considered any kind of promise, since they have no direct involvement of the relationship.
When discussing the lack of clear signature, which does not even bear resemblance to a single letter, Gertler stated that the lack of clarity may not matter. He spoke about the ability for certain individuals to issue and sign letters for a company. He said that the use of a signee is not “usual.”
He added that this letter was specifically provided to and for Tether, and said,
“The bank is basically saying that if it is wrong and Tether suffers a loss, Tether cannot sue the bank. I should note that anyone else who relies on the bank letter cannot go after the bank because the letter is for Tether and no one else.”
Another cause of concern seemed to be the wording used, opting for the phrase “portfolio cash value” rather than the typical language used within their whitepaper.
Some individuals theorized that they were editing the language to separate themselves from the whitepaper, which says,
“Each tether unit issued into circulation is backed in a one-to-one ratio (i.e. one Tether USDT is one US dollar) by the corresponding fiat currency unit held in deposit by Hong Kong based Tether Limited.”
Though some users commented that the use of the term “portfolio cash value” could essentially make it possible to use non-USD assets.
One of the attorneys that spoke with CoinDesk, who requested anonymity, explained,
“Regardless of whether I'm a purchaser or investor, who in their right mind would rely on this letter anyway? […] What people want to know when they buy tether is ‘are there dollars on deposit,’ and this doesn't say anything about that. It says it has $1.8 billion in its account but it doesn't have to be in cash. It says, ‘portfolio cash value.’ I don't know what that means.”
Realistically, these funds could even just be a temporary balance for the sake of issuing the letter.
Gertler attempted to explain further, noting,
“More likely, the portfolio is of various fiat currencies or various different bank accounts. If it is only USD, the bank letter is probably a form letter that contemplates various fiats and bank accounts.”
Tether has played an important role in the crypto ecosystem, but they still have not complied with simple requests for a publicized audit. This concern is only increased by the fact that their whitepaper specifically says that the company uses “professionals” to handle their “periodic audits.” To date, there has not been a single complete audit.
That is not to say there have not been attempts. Tether has worked with Friedman LLP in September to establish a complete audit, but Tether ultimately “dissolved” the connection with the analysts. They sought out the help of Freeh Sporkin & Sullivan LLP, who commented that the USDT was backed by bank deposits, but it was filled with issues like the recent Deltec Bank letter.
Overall, Tether simply has not provided adequate evidence that their bank accounts have held the liquid supply of USD to support the tether in circulation. In October, the company’s market cap lost 40%. Subsequently, Bitfinex sent hundreds of millions of tokens to the “treasury.” No matter what anyone believes or does not believe about the letter, it is clear that many questions have still not found the answers they require.