Tether has surprisingly begun issuing new tokens once more, with $300 million USDT printed yesterday.
That’s around two months after their printer went silent and after CFTC sent them a subpoena for an investigation that was seemingly received on Janury 23d, the day the printer went silent.
This isn’t the first time tether has printed after January the 23rd. They issued around $30 million on January the 31st, but then revoked it a day after. Then on March the 12th they froze around $5 million USDT.
The newly issued $300 million has not been revoked hours after it was issued, so it might be the case the printer has just been turned back on.
Questions have been raised regarding this centralized dollar backed currency because the peg relies on users depositing actual fiat into the bank account of Tether Limited.
Tether and Bitfinex were subject to a banking blockade last year, so it remained unclear how the fiat was deposited, with Bitifnex later announcing they had secured a Polish bank account. Tether’s whitepaper says:
“Each tether issued into circulation will be backed in a one-to-one ratio with the equivalent amount of corresponding fiat currency held in reserves by Hong Kong based Tether Limited. As the custodian of the backing asset we are acting as a trusted third party responsible for that asset.
This risk is mitigated by a simple implementation that collectively reduces the complexity of conducting both fiat and crypto audits while increasing the security, provability, and transparency of these audits.”
They have not published a fiat audit for months, with their auditors dropping Tether on or around January 24th this year.
The tether issuing process is fairly simple. You deposit say $100 into their bank account, then they give you 100 USDT tokens.
How exactly you deposit that $100 is a bit of a mystery as it’s not clear what bank account numbers they use, or what process they undertake to verify the depositor and therefore to verify who they should send the tokens to.
The whitepaper does not explain that process, but somehow around $2.5 billion has been deposited in their bank account in the past 8 months or so.
The problem is no one can verify such huge sums have indeed been deposited especially as Bitfinex itself was not accepting fiat deposits for some time and still struggles with fiat withdrawals as far as we are aware.
Then there are the bigger regulatory aspects. The above set-up would most probably be considered as money transmission, thus would require a license.
Tether Limited itself, as a custodian of such huge sums, would also need to comply with a number of regulations to minimize one of the risks the whitepaper itself highlights: they run with the money.
Finally, the whitepaper itself says “the corresponding total amount of USD held in our reserves is proved by publishing the bank balance and undergoing periodic audits by professionals.”
No such proof has been provided regarding $2.5 billion, a sum that can cause systemic problems in the entire crypto ecosystem.