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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.

Advertisement

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,

Advertisement

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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Will This Move By Tether Jeopardize The Crypto Market’s Incoming Bull Run?

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The crypto market’s crash in the recent past has been terrifying for the folks from the crypto sphere. As digital assets across the charts have exhibited double-digit losses. Billions from the market cap of the industry have gone Houdini. Which is currently at $2.3 trillion from the sky-high peaks of $3 trillion a couple of weeks ago. 

Netizens have been pondering over the plausible reason for the market cycle. Which is currently not the one that the industry is wishing for. Meanwhile, Tether minting $1,500,000,000 worth of USDT out of thin air has been paradoxical for the players from the business. 

Is Tether The New Wolf? 

A mention on a public platform goes like Tether has minted $1,500,000,000 worth of USDT out of thin air. The documentation of the creation of the asset, its movements remains in a mist. The mint of such big numbers has left the space in turmoil. 

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This is in addition to a steep incline in the movements of deep-pocketed traders. According to substantial sources, 29,999,959 USDT was transferred from Huobi to an unknown wallet. 19,998,355 USDT moved from Huobi to Bitfinex. Movement of 40,000,000 USDT from FTX to Tether Treasury, which is an addition to a long list of transactions. 

Wherefore geeks are trying to connect the dots to vivid possibilities. One such possibility is following the footprints the massive printing of USD has left behind. Which did perplex people around the globe, and is a growing concern for the beneficiaries of the asset class. Sections have also been contemplating it to be a plausible catalyst for the market’s crash. 

Collectively, one of the paramount rationales behind the burgeoning concern is USDT being a primary pair against digital assets. In case of an uncertain event, the space could experience adverse impacts. Howbeit, the assumptions would not justify the movements of digital assets in the market. As there are numerous other factors that have been in play. The maze of time will help the industry rise beyond the odds.

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Tether Whales Move Over $533,000,000 in USDT Amid Broad Digital Asset Market Correction – Here’s Where the Crypto Is Going

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A severe market correction coincided with a surge in activity from crypto whales, who moved over half a billion dollars worth of stablecoins in a matter of hours, according to a whale-watching bot.

As Bitcoin started to breach the $50,000 level at around 01:30: UTC on Saturday, hundreds of millions of dollars in crypto began flowing between exchanges and wallets.

Whale Alert flagged one of the largest stablecoin transfers in the past day as a deep-pocketed crypto investor moved $116.68 million worth of Tether (USDT) from global crypto exchange Binance and into a wallet of unknown origins.

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Also making a splash was another transfer from a different whale on Binance, who moved $118.87 million worth of USDT into an unknown wallet.

Other big transfers that were spotted during the crypto market crash were:

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Whale Alert also spotted a massive Bitcoin transfer. The entity shifted 15,074 BTC worth $720.62 billion between wallets of unknown origins.

The whale transfers occurred during one of the largest crypto market meltdowns in recent memory. According to data from Coinglass, about $2.5 billion worth of trades have been liquidated in the past 24 hours.

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Tether FUD: The Mystery Behind $1 Billion USDT Print, Will Bitcoin (BTC) Price Pump?

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The crypto market is going through another bearish phase this month as the top cryptocurrencies lost majority of their gains from October. Bitcoin (BTC) has failed to hold key support of $55,000 and currently trading at $54,777. Amid growing pressure from the bears, Tether’s latest issuance has created another market FUD.

Tether is often accused of printing additional USDT to pump the BTC market. Even though there hasn’t been conclusive evidence for the claims, the controversy around Tether’s reserves only adds fuel to the fire. The latest issuance of $1 billion USDT has created a similar controversy especially given the crypto market is bleeding.

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Tether treasury printed a billion-dollar worth of USDT on November 26, the same day the crypto market fell sharply due to Covid-19 new variant induced fears in the stock market. Infamous crypto Twitter account that goes by the name of Mr. Whale claimed that Tether treasury minted $1 billion out of thin air.

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The controversy also comes at a time when the US federal agencies have demanded more power from Congress to crack down on the stablecoin market. Tether has always been a major concern for the regulators, given its past record with the mismanagement of USDT reserves. The stablecoin issuer was recently fined $41 million by CFTC over misleading claims. However, this wasn’t the first time that Tether has found itself at the receiving end of regulatory agencies.

Earlier in February this year, Tether settled a long-drawn case with the New York Attorney General (NYAG) Office for mismanagement of funds. Tether was fined $18.5 million and barred from offering any service in New York.

Will BTC Price Pump Post Tether Issuance?

Bitcoin’s (BTC) price showed minor recovery earlier today, reaching a daily high of $55,329 before retracing below the $55K support zone again.  The top cryptocurrency has lost more than 20% from its all-time high of $68,789 in October.

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Tether Bitcoin
Source: TradingView

With November turning bearish again, the major price targets of $98K seem to be out of the picture. Plan B, the Bitcoin analyst who popularised the Stock-to-Flow model admitted that BTC is set to miss its first price target of November.

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