It seems like Tether is not fully backed by fiat, which means the old accusations were actually true. I wonder why they were hiding the details when they were previously accused of this.
According to the New York Attorney General, Bitfinex borrowed over $600 million from Tether after losing $850 million to Crypto Capital Corp. This is no surprise, it seems that both companies share the same general counsel.
Hoegner from the general counsel wrote in his affidavit:
“As of the date [April 30] 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.”
There are 2.8 billion USDT tokens in circulation at the moment, confirming that Tether is backed by 74% fiat.
Zoe Philips, Lawyer of Tether, claims that Tether does not need to hold $1 for every token, while NYAG thinks otherwise. She wrote:
“According to the Attorney General, the line of credit needed to be frozen because it improperly impairs the reserves Tether would use for redemptions. The Attorney General appears to believe that Tether must hold $1 in cash fiat currency for every dollar of Tether. These allegations are wrong on multiple levels.”
Hoegner also wrote in his affidavit that the lending agreement has been made in order to protect the virtual currency market. He added that any disruption to Bitfinex’s operations could harm Tether.
Tether will continue to operate and it has updated its website to show that USDT is now backed by 74% Fiat (previously 1:1 backing). The NYAG will have to respond by the 6th of May with further reasoning regarding the credit issue. Most likely, the access to the line of credit will not be granted back.
I am not sure how much of a stablecoin USDT is by looking at the charts. If it would be a proper stablecoin, it wouldn’t gain or lose value at all… To be honest, the whole thing looks fishy to me now.