It is common knowledge and the well-propagated idea that each Tether stable coin USDT is backed by one US dollar, i.e for every USDT token, there is a dollar backing its value, which is why it is mostly used as a reserve by many firms. However, as per a new affidavit filled by Tether’s lawyer, the USDT token reserves are not all backed by the US Dollar fiat and the total supply has a backing of only 74% in fiat.
The company changed the backing in order to include loans from companies it is affiliated to on March 19th. Tether’s lawyer Stuart Hoegner filled the affidavit in order to put a stay on NYAG’s ex parte order, which required Bitfinex and Tether to make certain documents available by the 3rd of March.
Tether and Bitfinex are affiliated as they have a common owner as well as executives and Hoegner represents both the companies as their counsel. The affidavit filed by Hoegner reveals that USDT at present does not have a 100% backing in fiat or US dollar as it has been commonly known. However, Hoegner also mentioned that the lower backing revelation won’t really put any Tether user at risk.
The affidavit reads,
“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.”
Where it All Started?
Bitfinex and Tether being headed by the same owner were not much to think about until Bitfinex was accused of using its USDT reserves to cover $850 million in losses surfaced. However, both Bitfibnex and Tether have denied such claims, but things started to look fishy when several sources confirmed that Bitfinex is gearing up for conducting Initial Exchange Offering (IEO) to raise $1 billion in USDT.
Apart from Hoegner, Zoe Phillips of law firm Morgan Lewis, an attorney representing Tether also rebutted such allegations and said that there is no need for USDT to hold an equivalent value in fiat. She went on to claim that both Bitfinex and Tether are represented by independent counsels and terms of credit for either firm are negotiated on reasonable commercial terms.
Hoegner also reassured that Tether has enough liquidity for its operations and there is no need to worry for the customers or the investors. However, even after continuous reassurance, the market trends suggest otherwise as huge amounts of USDT is reportedly being moved from one exchange to another.