A longstanding legal drama finally found a solution on February 23. The New York attorney general announced that after a 22-month investigation into whether the company tried to cover up its situation, it had reached an agreement with cryptocurrency exchange Bitfinex – allegedly valued at $ 850 million – due to false losses Illustration of the extent to which the tether reserves (USDT) were covered by fiat collateral.
Under the terms of the announced settlement, which now marks the end of the investigation launched by NYAG in the first quarter of 2019, Bitfinex and Tether will pay the government agency a fixed amount of $ 18.5 million, but will not have to admit any wrongdoing. However, the agreement clearly states that Bitfinex and Tether will no longer be able to serve customers in the state of New York in the future.
In addition, Bitfinex and Tether must provide NYAG with quarterly reports on their current reserve status over the next 24 months and properly account for all transactions between the two companies. In addition, companies are required to provide public reports on the specific composition of their cash and non-cash reserves.
On the subject, New York Attorney General Letitia James said that both Bitfinex and Tether had been hushing up their losses and deceiving their customers by overestimating their reserves. When asked about this latest development, Stuart Hoegner, General Counsel at Tether, responded to Cointelegraph with a non-binding answer:
“We are pleased to have reached an agreement with the New York Attorney General on a lawsuit and moved this matter behind us. We look forward to continuing to lead our industry and serve our customers. “
Does an exclusive New York ban make sense at all?
To get a better legal perspective of the situation, Cointelegraph spoke to Josh Lawler, a partner at Zuber Lawler – a law firm with expertise in crypto and blockchain technology. In his view, the lawsuit, and in particular the type of settlement in which Tether and Bitfinex agreed to end the measures, underscores the confusion associated with digital asset regulation in the US.
Additionally, Bitfinex and Tether’s agreement to ban the use of its products and services by people and organizations in New York seems nearly impossible on paper, with Lawler believing:
“Are you saying that no one can own or trade in a New York Nexus Tether? Tether is traded on virtually every existing cryptocurrency exchange. Also, if Tether could restrict New Yorkers’ use of Tether tokens, is that really a good idea? Do we now have a world where any state can prevent certain distributed ledger projects from functioning in its jurisdiction? “
Even if the deal between Bitfinex / Tether and NYAG came about in the form of a settlement – meaning it is not subject to appeal or state control under the trade clause – state-sponsored bans can add to the existing regulation and uncertainty.
Additional transparency is always a good thing
Given that regulators are now urging Tether and Bitfinex to be more open about their financial affairs and what arguably a small fine fine on them, it seems like more and more companies dealing with USDT are having to pull up their socks and cash their books to order. Joel Edgerton, chief operating officer for cryptocurrency exchanges bitFlyer USA, told Cointelegraph:
“The key point in this deal is not the removal of the lawsuit, but the increased commitment to transparency. USDT remains at risk, but increased transparency should cement its lead in transaction volume. ”
Similarly, Tim Byun, Global Government Relations Officer at OK Group – the parent company behind the OKCoin cryptocurrency exchange – believes the deal can be seen as a win-win scenario not only for NY OAG and Tether / Bitfinex, but also for the cryptocurrency industry as a whole, alluding to the fact that the 17-page deal revealed no mention of the manipulation of Bitcoin (BTC) through the use of USDT.
Finally, Sam Bankman-Fried, CEO of Cryptocurrency Exchange FTX, believes the settlement has been by and large a good move for the industry, especially from a transparency standpoint, adding:
“Like many settlements, this one had a messy outcome, but the high-level finding here is that they have found no evidence of the most serious allegations against Tether – no evidence of market manipulation or unlimited unauthorized pressure.”
Will the testing of stable coins increase?
While stablecoins have been under the regulatory scanner for some time – as they claimed to be 1: 1 pegged to various fiat assets – it stands to reason that there may be additional pressure from government agencies for the transparency side of things from here on out.
Another mindset could be that governments around the world will now try to restrict the use of stablecoins like USDT, especially as a number of central banks come up with the idea of creating their own fiat-backed digital currencies. As a result, governments may want to push their citizens to use their centralized offerings instead of stablecoins.
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On the subject, Byun noted, “Stablecoin is just one type of cryptocurrency, or” convertible virtual currency, “and therefore stablecoins and the stablecoin market continue to be scrutinized and mandated by regulators.” However, Byun believes that crypto investors, regardless of whether they are Bitcoin, Ether (ETH), or Tether, generally understand that investing in crypto is still high risk and that they “exercise caution at all times.” have to”.
Does Tether Influence Institutional Adoption?
Another relevant question that should be explored is whether the deal could adversely affect the institutional investments currently flowing into this area. Lawler believes the decision will not slow adoption in the slightest. “Institutions don’t focus primarily on tether. There are other stable coins out there and Bitfinex is all but irrelevant to them, ”he added.
Similarly, the on-going reporting requirements set by NYAG for Bitfinex and Tether could even build institutional trust in Tether – a sentiment that some of Tether’s most vocal and staunch critics seem to agree with.
Even so, there is still much speculation about Tether’s Fiat reserves. For example, the finances of Tether Ltd. managed by Bahamas-based Deltec Bank. In this regard, an anonymous report alleged that “from January 2020 to September 2020, the amount of all foreign currency held by all domestic banks in the Bahamas increased by only $ 600 million” to $ 5.3 billion. Meanwhile, the total amount of USDT issued rose a whopping $ 5.4 billion to around $ 10 billion.
As Tether notes on its website, USDT is covered by fiat and other assets so such investigations may not be conclusive. However, both NYAG and the report’s anonymous authors agree that Tether needs to be more open about his financial situation. With this in mind, Tether’s commitment to transparency and disclosure of its reserves to a regulator appears to be a step in the right direction.