Sunday, February 5, 2023

CFTC Subpoenas Bitfinex and Tether Over USD-Pegged Token

CFTC Subpoenas Bitfinex and Tether Over USD-Pegged Token

Pressure is mounting on Tether and Bitfinex to prove USDT tokens are actually backed by dollars as claimed, as both firms received subpoenas from the U.S. Commodity Futures Trading Commission last week. The news comes as financial auditor Friedman LLP reportedly dropped Bitfinex without delivering a financial audit promised last May. 

Also read: Auditing Firm No Longer Working With Bitfinex as Critics Ask More Questions

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According to Bloomberg, both firms issued a statement declining to comment on the matter, other than to say they “routinely receive legal process from law enforcement agents and regulators conducting investigations”.

Tether Used as USD Substitute on Crypto Exchanges

Tether (the token, or USDT) is pegged 1:1 in value to the U.S. dollar, which Tether (the company) claims it holds in equal numbers — over $2.2 billion USD. As such, it is a popular USD substitute on exchanges which sometimes have problems moving fiat currency.

Bitfinex exchange logoOne such exchange is Bitfinex, which also happens to have a close relationship with Tether. In fact, both firms have the same CEO, J. L. van der Velde, while Bitfinex chief strategy officer Phil Potter is also a director at Tether.

The news triggered an instant plunge in BTC prices, which fell to just above $10,000 at press time. Tether and Bitfinex have faced repeated questions over whether USDT is truly backed by actual USD, and accusations that both have “printed” USDT to buy bitcoin and boost its price.

Little evidence exists to support either of those claims as yet, and the open market has generally valued USDT at around $1 — although it dipped to $0.983 today.

Bitfinex, Tether and Transparency

A promised audit by accounting firm Friedman LLP would have alleviated those concerns. However the audit failed to materialize and the company has erased any mention of Bitfinex from its website.

Tether tethers logoFriedman did complete a report saying it had seen Tether’s bank accounts on September 15th 2017, with a balance of $443 million USD and €1,590 EUR ($1,970). USDT had a $420 million USD market cap that day. However, Friedman also said it hadn’t examined the accounts beyond that one day snapshot, and Tether redacted the banks’ names in the final report.

Bitfinex’s executive team rarely speak in public and for several years, little information has been available about where its operations and banking relationships are located. The exchange allegedly suffered a 120,000 BTC theft by hackers in July 2016 and in 2017 struggled to process USD transfers after losing key banking partner Wells Fargo.

Greater transparency — including a security audit of Bitfinex and financial audit of both the exchange and Tether — would help ease those concerns. However, the companies still have their defenders among the “whale” class of cryptocurrency traders, which is a major user base.

Will the CFTC reveal any previously-unknown information about Bitfinex and Tether? Feel free to share your thoughts in the comments.

Images via Wikimedia Commons

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