The history surrounding Tether has been a story one indeed. And one that I have only scratched the surface of myself. But it might make for an interesting future post. The point is they have been the target of controversy in the past so this is no new thing for them.
Tether is backed 1:1 with USD, at least allegedly
One of the biggest issues and targets for controversy surrounding Tether is the fact they claim to be backed 1 to 1 by USD. But this fact has been extremely, if not impossible to verify for people. Wich combined with the dealing that where known that Tether has made public. Have been a melting pot for speculations indeed.
In short, the underlying thesis of this trade is incredibly misinformed and flat-out wrong. It is further supported by a blind belief in what borders on outright conspiracy theories about Tether
And there were even recently hedge funds that attempted to short Tether because of their beliefs that this was not the case. An event that Tether survived. But it has led to Tether reiterating that it holds no Chinese commercial paper and had cut its total holdings of commercial paper by 88% from $30 billion to $3.7 billion over the past year.
They even claimed that their commercial paper holdings were going to be as low as $300 million by the end of August. With the goal to hold no financial papers by early November.
Recent legal issues
The recent court filings are part of a legal case that dates back to 2019, made by a group of investors. In it, they claim that iFinex, the parent company of Tether and Bitfinex, issued unbacked Tether as a way to manipulate the market.
The judge for the United States District Court for the Southern District of New York, Katherine Polk Failla, ordered Tether to provide the documentation that proves they are indeed backed by 1 to 1 USD. They are required to provide “general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements” and other documents to the court.
Judge Polk Failla also dismissed the defense's request not to comply with this. They were citing previous documents and were claiming they were enough to prove the 1 to 1 backing.
We had already agreed to produce documents sufficient to establish the reserves backing USDT, and this dispute merely concerned the scope of documents to be produced. As always, we look forward to dispensing with plaintiffs' baseless lawsuit in due course.
Tether themselves put out a statement that is playing down the impact of the court's orders. And merely touts them as being routine.
What can happen going forward
The worst possible case I can see is that there will be some issue with the backing of Tether. Whether this is that it actually is not backed 1 to 1 or if there is some other skeleton that will rear its ugly head I would not know.
But if this is the case, then we could see a depegging of Tether. And what possibly could follow would be a similar collapse as we saw with UST. A rush to swap Tether en mas would be sure to put massive extra downwards pressure on it. Resulting in a possible further drop in price.
But of course, this would all be worst-case scenario stuff. So fingers crossed that everything is above board And no issues are found. =)
What are your thoughts on this? Is Tether above board or do you think something ugly will rear its head? And if they find an issue, will that have any ramifications for the rest of us? Please share your thoughts on this in the comment section down below. If you would like to support me and the content I make, please consider following me, reading my other posts, or why not do both instead.
See you on the interwebs!