Everything you need to know about the Bitfinex-Tether controversy

Tether has been shrouded in controversy since its inception and the Bitfinex-Tether controversy has finally got everyone in the cryptocurrency talking.

Tether’s claims that it is the best stable coin and about its legitimate operations have not been received positively. A stablecoin is a centralized cryptocurrency that is tethered to a fiat currency and maintains a 1:1 ratio. Tether is backed or claims to be backed by USD. So, if you have 1000 USDT in your Tether wallet, that is more or less equivalent to a $1000.

For the past two years, it was speculated that Tether did not indeed have the necessary reserves to back the USDT in circulation. The ongoing legal battle between Bitfinex and Tether has finally let all the skeletons out of the closet.

A quick history lesson: Tether

Back in 2015, Realcoin was rebranded to Tether. Founded by Brock Pierce with help from Craig Sellars and Reeve Collins, Tether began its journey to provide a stable coin platform that does not have the risks of crypto but the benefits of blockchain. This means, if you knew that the predicted price of ETH was going to drop, you could just convert it from ETH to USDT and store it for a sunny day.

Operated using an OmniLayer platform on the Bitcoin protocol, anyone can see when a Tether token is issued. This greatly differs from other cryptocurrencies mining like Bitcoin or Ethereum where mining and issuing a fresh coin remains anonymous. Although there are more than one Ethereum mining pool threatening the decentralization of the blockchain, Ethereum hasn’t been in the midst of controversies like Tether has.

What does Bitfinex have to do with Tether?

Bitfinex has been associated with Tether since the rebranding in 2015. Bitfinex integrated Tether into its cryptocurrency exchange and both these companies have been managed by iFinex. According to Tether’s website, JL van der Velde is the CEO of both the companies and the CFO is listed as Giancarlo Devasini.

Criticism leading to an unofficial audit

Amidst growing concerns, Tether has Friedmann LLP conduct an unofficial audit to put criticisms at rest but it had quite the opposite effect. CFTC (Commodity Futures Trading Commission) subpoenaed Tether in December 2017.

Tether got Friedmann LLP to conduct a complete third-party audit but within a month, the audit was halted with Tether claiming that the auditors were taking way too long. So, there never was a complete third-party audit.

Accusations against Bitfinex

In 2019, an investigation by the Office of the New York Attorney General started in 2018 revealed some shocking news. The NY Attorney General alleged that Bitfinex had lost $850 million in funds and dipped into Tether’s cash reserves to plug their losses.

This is what Attorney General Letitia James had to say, “Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

So what happens now?

The New York Attorney General’s office wants both Bitfinex and Tether to stop using and spending USD that came from Tether’s reserves but wants an injunction to compel both companies to continue their operations to ensure this does not impact their customers or the stability of the crypto markets.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.