The controversy surrounding Tether continues, despite the company’s release of an “internal memorandum regarding consulting services.” The issuer of USDT has been the subject of continual scrutiny in recent months following a sharp increase in the number of tokens issued, despite the company enduring significant banking issues.
Tether Recently Released an Internal Memorandum in an Attempt to Quell Accusations of Shady Practices Surrounding the Creation of USDT Tokens
The report was written by Friedman LLP (FLLP), and purports to detail the company’s “cash and token balances as of September 15th, 2017”. At the time of writing, Tether’s total market capitalization was approximately $437 million USD.
The memo has received scrutiny from prominent Tether-skeptic, Bitcrypto’ed. In an article published on Medium, Bitcrypto’ed emphasizes that, in the company’s own words, the report “do[es] not constitute an audit or attestation engagement” and that the information “is intended solely to assist the management of Tether Limited… and is not intended to be, and should not be, used or relied upon by any other party.” The author cites additional evidence to support the lack of legal substance underpinning the release, quoting the company as stating “FLLP did not evaluate the terms of the above bank accounts and makes no representations about the clients ability to access funds from the accounts or whether the funds are committed for purposes other than tether token redemptions.”
The article points out that unlike Tether’s March release which provided unaltered records of relevant associated bank accounts, the recent memorandum does not provide the names of the institutions with which the company is conducting its banking. The author also draws attention to the repeated use of the phrase “for the benefit of Tether Limited”, speculating that one of the company’s accounts purported to hold more than $60 million USD is likely “in reality under another name, like a trust, as Tether itself can’t get banking.” Bitcrypto’ed accuses Tether company of deliberately concealing the identity of the financial institution with which they are banking, warning that “in the case anything goes wrong, [customers] don’t know what bank or jurisdiction to file a lawsuit against them in.”
The Number of USDT Tokens in Circulation Has Increased By Approximately 500% Since Announcements of Tether’s Banking Issues
In late April, Tether announced that “since April 18, 2017, all incoming international wires to Tether have been blocked and refused by our Taiwanese banks.” The company has not provided a detailed explanation on how it has resolved its banking issues or if it has even done so.
In light of Tether’s assertion that “every tether is always backed 1-to-1, by traditional currency held in [the company’s] reserves”, Bitcrypto’ed accuses the company of using a fractional reserve system in order to inflate the supply of tokens – asserting that the banking problems experienced by the company would have made it extremely difficult to access the volume of liquidity required to drive the recent surge in USDT supply.
The Ownership Structure Pertaining to Bitfinex and Tether Is Convoluted
According to a post on Reddit, the Linkedin profile of Tether’s co-founder, Reeve Collins, previously stated that “Tether was acquired by Bitfinex.” On September 14, Bitfinex stated that “Bitfinex is owned & operated by iFinex Inc.” However, analysis provided on Twitter by Blockswater would suggest that both companies would ultimately be controlled by Digfinex Inc. This obfuscation of the ownership structures surrounding Bitfinex has intensified perceptions that the company is seeking to evade transparency pertaining to its operations.
Bitcrypto’ed had previously pointed out that Tether’s website clearly states that “Tethers are not money… monetary instruments[, and] are also not stored value or currency”, before adding that “there is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”
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Images courtesy of Shutterstock, Tether, Bitfinex
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