Companies behind Tether and Bitfinex revealed in a shock announcement today that USDT or Tether stablecoin is not backed 100% by the US dollar. The stablecoin only maintains about 74% of the outstanding coins in US cash and short-term securities. The company filed its disclosure in response on Tuesday to the New York Supreme Court.
New York State Supreme Court Receives News
The disclosure about the company’s cash reserves was made in a disclosure filed to the Supreme Court of State of New York on Tuesday. Tether is seeking to modify or vacate an injunction filed by the New York Attorney General last week. The company intends to stop disruptions to its business due to the AG’s allegations.
On April 25, the AG of New York Letitia James said that the companies behind Tether, a stablecoin, and Bitfinex, a popular cryptocurrency exchange, are hiding a loss of $850 million. Bitfinex allegedly lost the money and then used Tether funds to cover up the losses. However, the companies stated that the lost funds had been seized.
The filing was made by IFinex Inc., the Hong Kong based operator, and its affiliated companies. They wrote:
“The order effectively freezes a line-of-credit transaction among the respondents indefinitely, and orders them to produce huge volumes of documents by this Friday.”
Tether’s Problems Keep Rising
Tether and Bitfinex have been at the helm of several theories regarding Bitcoin price manipulation and allegations against its so-called dollar peg. However, the latest injunction only shows that the market has lost faith in Tether. Though it is a popular crypto coin, it managed to make the market lose over $10 billion in market value within just an hour of the AG’s allegations. Tether itself slid by 1.4 percent.
According to the filings, Tether has cash and cash equivalents of $2.1 billion “representing approximately 74 percent of the current outstanding tethers.” Both Bitfinex and Tether dispute the court’s jurisdiction over them since they do not operate in the US. Moreover, they both actively bar New York residents from conducting business on their platforms.
Per the filing, Bitfinex and Tether classify the transfer of funds as a loan. In case Bitfinex decided to utilize the entire line of credit, the company’s reserves will be a little less than $2 billion amounting to 68 percent of the current outstanding tethers. The fact that some of Tether’s funds are used for loans was disclosed two months ago by the company on its website.