Controversy surrounding Tether tokens grows as company fails to reveal where it’s banking

Tether tokens are reportedly backed by fiat currencies 1:1, meaning one USDT token equals 1 U.S. dollar held in the company’s bank account. Tether’s current supply of 437,061,572 tokens should mean that this exact amount is held in U.S. dollars. However, tether-skeptic Bitcrypto’ed believes things might not be that simple.

Back in March, Tether provided unaltered records of the bank accounts in which it holds funds, making it clear the money was really there. However, the company failed to provide any additional audit reports since then, and the amount of Tethers in circulation has increased by several hundred million.

Recently, the company released an “internal memorandum regarding consulting services.” The document, written by Friedman LLP (FLLP) reportedly details the company’s cash and token balances as of September 15, and was scrutinized by Bitcrypto’ed in a Medium post. Bitcrypto’ed quickly pointed out that the reports reads that it “do[es] not constitute an audit or attestation engagement”, and that it is only intended to assist Tether’s management, and shouldn’t be relied upon by any other third party.

In his analysis of the document, Bitcrypto’ed also pointed out that FLLP doesn’t really know if Tether has access to the funds presented in the report, and if they are to be used for Tether redemptions, or for something else, as the report states:

“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.”

Furthermore, he points out that Tether doesn’t disclose the names of the institutions in which its funds are, unlike in its March report. As the author points out, this means Tether token holders aren’t even being told in what bank their money is in. According to his post, this is being done so that, in case anything goes wrong, people don’t know what bank or in which jurisdiction to file a lawsuit against Tether.

Complementing his point is the fact that in the released document, the phrase “for the benefit of Tether Limited” is used, which according to Bitcrypto’ed shows Tether itself can’t get banking, and as such used another name, like a Trust.

Tether’s well-known banking issues

Back in April, Tether publicly announced that its Taiwanese banks blocked and refused incoming international wires. Since then, it hasn’t provided an explanation on how it resolved the issues with its banks, or if it has even resolved them at all. As points out, the amount of Tether tokens in circulation increased by about 500% since then, despite the lack of an explanation behind its banking.

Bitcrypto’ed further states that Tether tokens aren’t redeemable, citing part of the company’s terms, which state:

“However, Tethers are not money and are not monetary instruments. They are also not stored value or currency. 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.”

Tether and Bitfinex are believed to be sister companies, as analysis provided by Blockswater on Twitter suggests that both companies are controlled by Digfinex Inc.



The author adds that even if the company does have the funds, they never have to pay token holders. Moreover, as he puts it, there may even multiple claims on the money, one for Tether, and one for margin debt on Bitfinex.

“Bitfinex can have ‘full reserves’ of Tether, while loaning them all out on Bitfinex, because the money is in the same accounts, but in reality, you have Tether holders and that money being used for lending at the same time.”

In its defense, Tether has claimed that it may refuse to redeem the funds of a particular customer, as it has a duty to ensure the service isn’t being used by bad actors, assuring that the controversial clause in its terms is there for AML/KYC compliance. Furthermore, it stated that despite its banking problems, “tens of millions of dollars are able to flow in and out of Tether daily using the channels we have established.”