Bitfinex and Tether are facing serious allegations. The Office of the New York Attorney General is investigating iFinex, the operator of Bitfinex and Tether Ltd., and the office alleges that executives have covered up missing funds. Now, many are debating whether this will have serious consequences for the exchange and its associated stablecoin.
The Accusations In Detail
According to the Attorney General’s office, $850 million is missing from Bitfinex’s activities, and the exchange did not disclose this loss to its investors. Furthermore, executives have allegedly attempted to cover this up by moving as much as $900 million from Tether’s reserves and putting it into Bitfinex’s own hands.
These funds originally went missing when Bitfinex transferred $850 million to Crypto Capital, a payment processor that was supposed to handle customer withdrawals. Crypto Capital seems to have been the reason that the funds disappeared, and Bitfinex operators apparently co-mingled client and corporate funds to hide the loss.
Tether, meanwhile, denies that any problems exist. It says that the $850 million has not actually been lost, but has in fact been seized and safeguarded. It adds that the Attorney General’s office has committed a “gross overreach” and says that Bitfinex and Tether are financially secure. Of course, this is unlikely to satisfy its critics.
The End of Tether?
Tether has always been criticized for the poor transparency around its reserves, but this issue is particularly serious. An ongoing lawsuit could cause many users to sell off the coin, and indeed, many people say they plan to do so. However, it is not clear if this sentiment is widespread enough to actually threaten the coin’s value.
As such, this may not be the end for Tether. So far, the Attorney General’s office has primarily issued a court order that prevents Bitfinex from moving Tether reserves and dividends into its own possession. The court order also compels the companies to cooperate, and as matters proceed, the full effects will become much more clear.
It is far from obvious whether this will do lasting damage to Tether, but the news has already had effects on the wider crypto market. Bitcoin’s market price dropped within hours of the news, although it has since recovered to some extent. Tether itself is trading slightly below its $1.00 price peg, although this is an ongoing issue for the coin.
The controversy surrounding Tether could reinvigorate competing stablecoin projects. Other high-profile stablecoins include Circle’s USDCoin (USDC), TrustToken’s TrueUSD (TUSD), the Paxos Standard Token (PAX), and StableUSD (USDS). As TheBlockCrypto notes, these coins are now trading at a premium due to higher demand.
Those projects, however, are just the most established stablecoins. Incidentally, Wirex has just announced the launch of 26 Stellar-based stablecoins, and eToro has announced its own stablecoin plans. These new stablecoins may or may not gain traction, but it is clear that the stablecoin trend is far from over—with or without Tether at the forefront.
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