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Bitfinex Claims It’s Repaid a $750 Million Loan From Tether

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  • Bitfinex claims to have fully repaid its Tether loan.
  • The loan triggered a New York Attorney General’s office investigation.
  • But there are still questions about the exchange’s relationship with Tether.

Bitfinex, the fifth-largest cryptocurrency exchange by volume, has reportedly repaid the remainder of a $750 million loan balance with stablecoin issuer Tether.

The exchange told The Block today that it paid $550 million to Tether in January, after having paid back $100 million in each of the previous two years.

Bitfinex, which shares key leadership with Tether, took out the line of credit in 2018 after alleging that its payments processor, Crypto Capital, stole $850 million. The New York Attorney General’s (NYAG) office has been probing the loan since 2018 on suspicion that Bitfinex was essentially lending itself money to cover up that loss. Crypto Capital itself stands accused of money laundering.

As the NYAG explained in April 2019:

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“In order to fill the gap, executives of Bitfinex and Tether engaged in a series of conflicted corporate transactions whereby Bitfinex gave itself access to up to $900 million of Tether’s cash reserves, which Tether for years repeatedly told investors fully backed the tether virtual currency ‘1-to-1.’”

As Bitfinex general counsel Stuart Hoegner told The Block, the exchange had a “short-term need for cash, and Tether was prepared to lend on commercially reasonable terms.”

The New York Attorney General’s argument is that using Tether reserves in this way would constitute fraud. Early in the investigation, Tether conceded in March 2019 that it wasn’t totally backed by real US dollars, but also by “cash equivalents” and sometimes “other assets and receivables.”

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The loan repayment doesn’t mean Tether and Bitfinex’s legal troubles are over.

Willamette University College of Law professor Rohan Grey, who also serves as Vice Chair of the Digital Currency Global Initiative, riffed on the old crypto adage of “don’t trust, verify,” telling Decrypt there was no reason to trust that Bitfinex had repaid the loan given its previous dodginess about whether Tethers were fully backed by US dollars. He admitted, though, that given the bullish state of the cryptocurrency markets, it’s plausible.

“However, even if repayment did occur as alleged, it would be a serious mistake to adopt an ‘all’s well that ends well’ view of what transpired,” said Grey. “The core concern—that Tether’s assets are not fully backed—remains, and its opaque relationships with Bitfinex and Deltec remain ethically and legally problematic.”

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“Deltec” refers to Deltec Bank & Trust, an international bank based in the Bahamas that counts at least one other crypto exchange among its clients. Though rumors have swirled that Bitfinex holds an ownership share in Deltec—and that Deltec is holding Bitcoin reserves for Bitfinex—Deputy CEO Gregory Pepin told journalist Laura Shin last month that these are untrue.

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Tether has yet to respond to a request for comment.

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Hindenburg research offers $1m for disclosing exclusive Tether information

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  • Hindenburg has accused Tether of lacking transparency in disclosing its backing reserves. The firm says that this secrecy puts Tether’s investors at risk.
  • It isn’t the first time that Tether is facing accusations of irregular dealings. It has also come under fire for alleged market manipulation.

Hindenburg Research announced a one million bounty on information disclosing Tether’s (USDT). backing reserves. The forensic financial researcher has expressed its doubts about the stablecoin’s backing. 

According to Hindenburg, Tether’s secrecy on the matter exposes its investors to risk. This claim follows another by Alex Mashinsky that it was minting new USDT for cryptos. Such minting contravenes Tether’s terms. Mr. Mashinsky is Celsius’ CEO>

Today, Tether stands among the top 10 cryptocurrencies in the market. But, these claims might make it lose credibility within the crypto sector. The forensic financial firm says that it’s vital that Tether discloses its backing.

Now, its users can take advantage of this opportunity to earn a bounty. All they need to do is help the firm dig out the secrets surrounding the Tether stablecoin.

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Hindenburg is a financial firm dedicated to the exploration of financial research. It seeks solutions for major stress points within the financial and crypto space. Its diversified functions enable it to look into different financial aspects include credits, derivatives.

How Hindenburg plays a role in this research

Hindenburg is well-versed in offering the best investment advice. Besides identifying financial irregularities, it tracks financial fraud and illegal monetary connections. Since its start, it has been producing reports on different projects. It also maintains their progression of its platform.

Tether has kept mum on its possible fraudulent activity. It insists that it holds $1 is to every 1USDT on the company’s US dollar traditional reserves. But, it also stated that a good amount of USDT has its backing from US commercial paper. This factor places it at the most-coveted position in the commercial paper market.

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Not its first rodeo

In 2019, Tether found itself facing accusations of market manipulation. Additionally, it faced allegations of not disclosing all USDT risks to its users. It wasn’t alone in this as crypto exchange Bitfinex also found itself in the same scandal. Both companies were lucky after a court ruled against half of the plaintiffs’ claims.

But, New York’s district attorney general ordered an end of their activity in the state. Everyone is trying to understand why Tether finds itself in illegal claims. 

It’s a viable hedge against the volatility connected to other cryptocurrencies. But it isn’t doing enough to bring trust back from its users.

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Tether on the spotlight for minting new USDT used for crypto-loan collateral

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  • Tether faces more headwinds as one of its big customers, Celsius Network, confirms giving other cryptocurrencies as loan collaterals.
  • The loan agreement varies depending on crypto volatility, Celsius Network says, with higher crypto collaterals when crypto prices fall.

One of Tether’s major customers, Celsius Network quasi bank, says Tether lends out new stablecoins (USDT) in return for cryptocurrencies. This is contrary to the company’s current terms of service which state that “only money will be accepted upon issuance.” Alex Mashinsky, the CEO of Celsius Network, told the Financial Times;

If you give them enough collateral, liquid collateral, Bitcoin, Ethereum and so on . . . they will mint tether against it,

Additionally, he says “new USDT is issued for such loans,” then destroyed once the loan is closed. This strategy “does not permanently increase USDT in circulation,” he adds.

Launched in 2014, Tether’s USDT is the world’s leading stablecoin with a $70 billion market cap. The token’s utility mainly lies in providing easier ways to trade other crypto assets. As its name holds and as its white paper reads, Tether is backed to the US dollar at a ratio of 1:1.

In recent years, however, the stablecoin operator has been the subject of regulatory and media scrutiny. The Commodity Futures Trading Commission (CFTC) and the New York attorney-general’s office claimed misrepresentation of the firm’s reserves. Tether neither confirmed nor denied these claims, but was fined $41 million for the same. CNF also reported that Bloomberg Media had put forth similar claims which Tether threw out claiming a plot to defame it.

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Tether disputes claims of reserve Mmsrepresentation

In a primer published in May this year, the company says,

Newly issued [USDT] must be backed by collateral” and that “redeemed [USDT] tokens are not released back into circulation unless new collateral has been provided.

All through, however, the stablecoin issuer has declined to clarify its alleged crypto-lending feature or whether it was minting new tokens through it. Instead, it has issued the following statement:

We have a select, small group of customers that borrow USDTs in exchange for posting security. These loans are secured by collateral in Tether’s possession of well in excess of 100 percent of the loan proceeds and earn monthly interest. Our lending program was first disclosed long ago in our reserves breakdown and is not a secret.

But as Mashinsky notes, their USDT loans are typically 30 percent over collateralized, and amounts vary with volatility. Should Bitcoin, for instance drop, the company has to give Tether more of the crypto asset.

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Of note, Celsius, which US regulators are after for unregistered offerings, had borrowed $1B worth of USDT from Tether earlier this month.

Among its many troubles, Tether is now battling a US class-action lawsuit. Plaintiffs allege Tether issued unbacked USDTs to purchase Bitcoin and manipulate the market. The company has disengaged itself from such claims, calling the case “shambles” and a “clumsy attempt at a money grab.” The firm has also made a micro win as a federal judge dismissed half of these claims last month.

  • Tether faces more headwinds as one of its big customers, Celsius Network, confirms giving other cryptocurrencies as loan collaterals.
  • The loan agreement varies depending on crypto volatility, Celsius Network says, with higher crypto collaterals when crypto prices fall.

One of Tether’s major customers, Celsius Network quasi bank, says Tether lends out new stablecoins (USDT) in return for cryptocurrencies. This is contrary to the company’s current terms of service which state that “only money will be accepted upon issuance.” Alex Mashinsky, the CEO of Celsius Network, told the Financial Times;

If you give them enough collateral, liquid collateral, Bitcoin, Ethereum and so on . . . they will mint tether against it,

Additionally, he says “new USDT is issued for such loans,” then destroyed once the loan is closed. This strategy “does not permanently increase USDT in circulation,” he adds.

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Launched in 2014, Tether’s USDT is the world’s leading stablecoin with a $70 billion market cap. The token’s utility mainly lies in providing easier ways to trade other crypto assets. As its name holds and as its white paper reads, Tether is backed to the US dollar at a ratio of 1:1.

In recent years, however, the stablecoin operator has been the subject of regulatory and media scrutiny. The Commodity Futures Trading Commission (CFTC) and the New York attorney-general’s office claimed misrepresentation of the firm’s reserves. Tether neither confirmed nor denied these claims, but was fined $41 million for the same. CNF also reported that Bloomberg Media had put forth similar claims which Tether threw out claiming a plot to defame it.

Tether disputes claims of reserve Mmsrepresentation

In a primer published in May this year, the company says,

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Newly issued [USDT] must be backed by collateral” and that “redeemed [USDT] tokens are not released back into circulation unless new collateral has been provided.

All through, however, the stablecoin issuer has declined to clarify its alleged crypto-lending feature or whether it was minting new tokens through it. Instead, it has issued the following statement:

We have a select, small group of customers that borrow USDTs in exchange for posting security. These loans are secured by collateral in Tether’s possession of well in excess of 100 percent of the loan proceeds and earn monthly interest. Our lending program was first disclosed long ago in our reserves breakdown and is not a secret.

But as Mashinsky notes, their USDT loans are typically 30 percent over collateralized, and amounts vary with volatility. Should Bitcoin, for instance drop, the company has to give Tether more of the crypto asset.

Of note, Celsius, which US regulators are after for unregistered offerings, had borrowed $1B worth of USDT from Tether earlier this month.

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Among its many troubles, Tether is now battling a US class-action lawsuit. Plaintiffs allege Tether issued unbacked USDTs to purchase Bitcoin and manipulate the market. The company has disengaged itself from such claims, calling the case “shambles” and a “clumsy attempt at a money grab.” The firm has also made a micro win as a federal judge dismissed half of these claims last month.

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US Regulator Orders Tether To Pay $41,000,000 in Fines – Here’s Why

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The Commodities Futures Trading Commission (CFTC) is ordering the entities behind the Tether stablecoin (USDT) to pay $41 million in fines.

According to a new press release, the CFTC charged Tether Holdings Limited, Tether Limited, Tether Operations Limited, and Tether International Limited for making “untrue or misleading statements and omissions of material” related to USDT.

USDT is pegged to the US dollar, and Tether claims it is completely backed by corresponding fiat assets, including the dollar and the euro.

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According to the statement, the regulator examined 26 months between 2016 to 2018 and found that Tether only had sufficient reserves to fully back USDT on 27.6% of the examined days.

“In fact Tether reserves were not ‘fully-backed’ the majority of the time. The order further finds that Tether failed to disclose that it included unsecured receivables and non-fiat assets in its reserves, and that Tether falsely represented that it would undergo routine, professional audits to demonstrate that it maintained ‘100% reserves at all times’ even though Tether reserves were not audited.”

The CFTC also says Tether dipped its reserve funds into the operational and customer funds of crypto exchange Bitfinex.

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“The order also finds that, instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves; comingled reserve funds with Bitfinex’s operational and customer funds; and held reserves in non-fiat financial products. The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a ‘liquidity crisis.’”

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