- Tether was found to have lied about the backing of its tokens from 2017 yesterday and fabricated so-called ‘verification’ sessions
- Tether owner iFinex must pay an $18.5 million fine and is banned from operating in New York
- The crypto community responded with pure hypocrisy, calling it nothing but FUD and congratulating the teams on a ‘win’
Yesterday, iFinex, owner of Bitfinex and Tether, agreed to pay an $18.5 million fine to bring to an end a two-year investigation by the Office of the Attorney General (OAG). In her summary of the case, New York Attorney General Laetitia James outlined the wrongdoing that both companies had perpetrated, coming to the damning conclusion that Tether has gone for years without having adequate, or indeed any, backing for the USDT tokens it was printing. Instead of condemning them, the cryptocurrency community largely congratulated Tether and its lawyers for the perceived victory, displaying a stunning level of hypocrisy from a group who are often so quick to decry the actions of the scammers they say give the industry a bad name.
Tether Found to Have Lied About USDT Backing
Back in April 2019, the OAG accused Bitfinex and Tether of several acts of financial malpractice, including Tether financing an $850 million loan to Bitfinex to cover a black hole after their shady payment processor Crypto Capital absconded with the money. Tether was then formally accused of not being able to prove that it could fully back all the USDT tokens it minted, accusations that had been swirling round the crypto space since 2017.
Ever since this accusation, Tether has gone to great lengths to avoid having an audit, publishing bankers letters that proved nothing and frequently issuing statements that amounted to little more than vague assertions that USDT tokens are backed by a combination of traditional currency, cash equivalents, thirty party receivables, and a whole bunch of other assets. This has been dismissed as ‘Tether FUD’ by many quarters, but in its summarizing statement the AOG’s findings couldn’t have been clearer:
The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations.
Not only this, there were two occasions where Tether tried to prove its legitimacy by opening up its bank accounts to minor scrutiny. On both occasions however, the money either arrived the same day or was sent back to Bitfinex the same day, showing that it was never theirs to begin with.
This was a damning indictment of tether’s activities and acted as final, incontrovertible and uncontested proof that Tether lied for years about the backing behind their tokens, and yet somehow the crypto community managed to declare this as a win! There were posts all over Twitter about how the tether FUD was finally over and about how it was never grounded in truth, while a barrage of glad handing went on in the virtual offices of the Bitfinex lawyers over the perceived victory. Maybe the only victory was no one going to prison?
Crypto Community Hypocrisy is Startling
The hypocrisy from the community was incredible – Tether had been found guilty in all but name of defrauding everyone who has ever dabbled in the space over and over again for years, and the very people who are so quick to complain about crypto scammers were calling it nothing but FUD! Even as recently as last month, Bitfinex lawyer Stuart Hoegner dodged questions of the audit on the What Bitcoin Did podcast, reinforcing the party line that every tether token was backed by the jumble sale of cash and assets, which he knew to be a lie. The fact is that the Tether FUD wasn’t FUD, it was the opposite of FUD. It was a LAPWEC – a Legitimate and Perfectly Warranted Episode of Concern. It’s like Craig Wright finally admitting he’s not Satoshi and the BSV community congratulating him.
Tether and Bitfinex both tried to spin the verdict in their favour, stating how they were not found guilty of any crime and that they were paying the $18.5 million to just move on, adding to the mass episode of cognitive dissonance over the matter. Thankfully some with a more critical eye dared to mention the wrongdoings that forced them to pay the fine rather that fight a case they knew they couldn’t win, but there were shockingly few and far between.
The mainstream media has had a field day over the Tether price manipulation scandal, which we mentioned a few weeks ago was inevitable while it was still ongoing, doing further damage to Bitcoin’s reputation, at least in the short term until this blows over.
Black Swan is Dead
The only good to come out of the whole sorry affair is that the threat of a Tether-based implosion is over, as they will now have to increase their transparency and prove that their tokens are backed on a quarterly basis. It will be interesting to see if their market cap reduces in that time to fit with what is provably backed, and also how they go about conclusively proving whether or not every single one of their 34 billion tether tokens are backed.
A Tether implosion was one of the so-called black swan events that was hanging over the crypto space like a sword of Damocles, so at least it has finally been removed. The mass ignorance of Tether’s continual lies however is reflective of a desire to prioritize convenience and the continuance of the bull market rather than acknowledging that a company crucial to the health of the crypto space knowingly defrauded everyone in the market for years.