The crypto industry media company, CoinDesk, has formally joined a legal case involving stablecoin operator Tether and the New York Attorney General’s office. The matter involves the release of Tether’s breakdown of its reserve composition.
The conflict started in June last year when CoinDesk filed a Freedom of Information Law Request (FOIL) for documents that detail Tether’s reserve breakdown. Normally, New York’s Freedom of Information Law allows members of the public to submit requests for access to government records, like court documents or records involving lawmakers and their work.
In May last year, Tether produced the reserve breakdown information to the New York Attorney General as part of its settlement agreement with the agency. The settlement agreement closed a long legal fight between Tether and the crypto exchange , Bitfinex over whether Tether’s parent company, iFinex, co-mingled funds and misrepresented the reserve backing of USDT stablecoin.
Initially, Tether’s attorney asked the Attorney General's Records Access Officers to deny the request, and they complied. But, CoinDesk later appealed such a decision and saw success when Freedom of Information Law Appeals Officer Kathryn Sheingold granted access to the documents.
The dispute is still ongoing. Tether is now trying to block access to the documents. The company claims that handing over the requested information would compromise its competitive advantage. The company further argues that providing the requested information would compromise its investment strategy, which other firms could use to close the competitive gap between themselves and Tether. Additionally, Tether claims that the information in the documents would compromise its relationship with its partners who are crucial to the aspects of its business that draw customers.
But, CoinDesk says that it is only interested in the document that shows Tether’s breakdown of its reserves, which was sent to the Attorney General in May last year. However, Tether maintains that such information is already accessible to the public in a form that does not compromise the company’s competitive advantage. In other words, Tether does not want to disclose further information about its business. The company fears that doing so would allow bad actors access to compliance information that could enable them to poke holes in the company’s compliance system.
Mystery on Tether’s Reserve Assets
Questions about stablecoins, especially the one called Tether, have been knocking around financial circles for months. The major question is whether stablecoins are stable as they claim to be? A Tether coin is claimed to be worth $1. Tether puts all these dollars in a bank to back the USDT cryptocurrency one to one, and keep their price stable at $1. However, many people still ask the big question about the largest stablecoin issuer (Tether): whether Tether really has the $71 billion in a bank somewhere backing the 71 billion Tethers in circulation?
Critics have raised questions about Tether as a potential systemic risk on the crypto ecosystem. Last year, Tether put out a testimony about its reserves to reassure users that the popular stablecoin is stable. However, the testimony seems unlikely to reassure most vocal critics. Some critics fear that the real use of Tether stablecoin is to keep the price of Bitcoin high. The company has been investigated by the New York Attorney General for claims around its backing and settled with the New York Attorney General’s Office with an $18.5 million fine in February last year.
When Tether was launched in 2014, it claimed that each Tether (USDT) was backed 1:1 with US dollars. In March 2019, the company updated its website to state that all Tether tokens are backed 100% by Tether’s reserves. For the first time, Tether revealed a breakdown of its reserves in March 2021. Its testimony showed that the company held almost 76% of its reserves in cash and cash equivalents and other short-term deposits and commercial paper. The rest is held in secured loans, bonds and other investments, including Bitcoin.
Fears around stablecoins are not just limited to Tether. In October last year, the Chairman of the US Securities and Exchange Commission, Gary Gensler asked Congress to give the SEC more authority to regulate cryptocurrency.
