Tether, a stablecoin tied to the dollar that is meant to mediate the volatility of other cryptocurrencies, is partly backed by bitcoin.
As detailed in court documents obtained by The Block[1], Tether admitted to using some of the cash reserves meant to back its stablecoin to purchase bitcoin, among other assets.
This revelation is the latest in legal proceedings between the New York Attorney General (NYAG) and Bitfinex, a leading cryptocurrency exchange which shares management with Tether. Bitfinex and the NYAG have gone back and forth[2] in a battle of legal letters after the NYAG petitioned the New York Supreme Court to stop the exchange from drawing on a $900 million line of credit it established with Tether[3] to cover $850 million in losses it incurred when its fiduciary relationship with payment processor Crypto Capital went south.
The war of words has offered a rare glimpse into Tether/Bitfinex’s shared business practices, including the revelation that Tether’s reserves are only 74 percent backed[4] following the $850 million loss. Additionally, Bitfinex used Crypto Capital to commingle business and customer funds. Now, Bitfinex’s legal counsel is saying that some of these funds were used to buy bitcoin.
“Tether actually did invest in instruments beyond cash and cash equivalents, including bitcoin,” David Miller, Bitfinex’s attorney, testified, adding that it is a “small amount.”
Presiding Judge Joel M. Cohen responded by saying that, while it “may be a little beyond the issue,” that “Tether sounded to me like sort of the calm in the storm of cryptocurrency trading. And so if Tether is backed by bitcoin, how is that consistent? If some of your assets are in a volatile currency that Tether is supposed to somehow modulate,” then that supports the NYAG’s
