Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
Stablecoins pegged to fiat currencies have been reportedly backed by cash reserves and similar assets, but new reports reveal the extent to which this may not be true. Â
Alex Mashinsky, CEO of crypto lending platform Celsius, said today that stablecoin giant Tether is now issuing its dollar-pegged cryptocurrency in exchange for cryptocurrencies like Bitcoin and Ethereum.Â
Mashinsky told the Financial Times that, âIf you give them enough collateral, liquid collateral, Bitcoin, Ethereum and so onâ.â.â. they will mint tether against it,â before elaborating that the Tether (USDT) issued in such cases is destroyed when the loan is closed so as not to increase the coins in circulation.
What the firm is allegedly doing is in direct conflict with the firmâs legal terms. Section 3 of Tetherâs own terms plainly states: âTether will not issue Tether Tokens for consideration consisting of the Digital Tokens (for example, bitcoin); only money will be accepted upon issuance.â
More Tether controversy
Itâs not the first time that Tetherâs adherence to the principle of 1:1 issuance of stablecoins has been called into question.Â
Earlier this year, Tether was hit with a $41 million fine by the Commodity Futures Trading Commission (CFTC)âan independent watchdog of the U.S. government that regulates derivatives.Â
The CFTC said that the firmâs stablecoins were not backed 1:1 by dollar reserves over most of the period spanning June 1, 2016, to February 25, 2019. The Commission also said that Tether didnât disclose the fact that it included many non-fiat assets in its reserves and failed to undergo professional audits to demonstrate the fidelity of its reserves to the amount of USDT in circulation.Â
Fitch Ratings Issues Stablecoin WarningThe CFTC also alleged that over a 26-month period from 2016 to 2018, the firmâs reserves were only sufficient little more than a quarter of the time. The stablecoin issuer also used âunregulated entitiesâ to hold funds.Â
This summer the firm promised it would release its long-awaited audits âwithin monthsâ after fellow stablecoin issuer Paxos said: âNeither USDC nor Tether is a regulated digital asset, for the simple reason that neither token has a regulator. In fact, neither USDC nor Tether tokens are âstablecoinsâ in anything other than name.âÂ
In August, the firm cited an audit by Moore Cayman to assure the public that its stablecoin was indeed fully backed. Though the value backing Tether indeed matched the number of tokens in circulation, only 10% of that backing was held in cash and bank deposits.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.