Altcoin

Tether favors Bitcoin and other cryptos in exchange for USDT loans: Report

  • Tether accepts Bitcoin and other cryptocurrencies as collateral for USDT issuance.
  • The move goes against Tether’s claims of USDT issuance in exchange for actual dollars.
  • The stablecoin company and Bitfinex have to pay $42.5 million in fines. 

KOLKATA (Coinchapter.com) – Tether prefers Bitcoin and other cryptocurrencies as collateral to lend new USDT tokens, a new report revealed Tuesday.

Related: US Department of Justice goes after Tether executives.

The stablecoin company’s juxtaposed claims of redeeming actual fiat dollars in exchange for USDT issuance came to light when Celsius Network CEO Alex Mashinsky admitted to paying Bitcoins to avail an equivalent amount of the top stablecoin.

“If you give them enough collateral, liquid collateral, bitcoin, ethereum and so on . . . they will mint tether against it.

Mashinsky told Financial Times

Tether burns the USDT coins after redeeming “so it does not permanently increase USDT in circulation.” The Celsius Network CEO also added that USDT loans are typically overcollateralized to the tune of 30%. The degree of over-collateralization depends on market volatility.

“If bitcoin drops, they give us a margin call [and then] we have to give them more bitcoin.”

Related: Tron Becomes the Highest Issuer of Tether

Tether Refutes ‘Untoward’ Accusations

Bitfinex’s sister firm remained mum to questions on the USDT lending process and rejected claims of issuing loans to affiliate entities. Tether also added that collaterals cover 100% of the loans.

“We have a select, small group of customers that borrow USDTs in exchange for posting security. These loans are secured by collateral in Tether’s possession of well in excess of 100 per cent of the loan proceeds and earn monthly interest.”

Related: Bitfinex Announces It Has Repaid Its Loan To Tether

There is no secret the lending process, Tether asserted, stating that the program is already available for the public’s watchful eyes.

“Our lending programme was first disclosed long ago in our reserves breakdown and is not a secret. The extent of the programme is currently disclosed in our assurance opinions, published quarterly . . . This practice is common to other stablecoin issuers. This lending is undertaken narrowly, efficiently, securely and profitably.”

Nonetheless, the stablecoin printing firm and Bitfinex still have $42.5 million worth of fines to pay.

A $42.5 Million Fine From CFTC

Bitfinex and Tether stand to pay fines of more than $42 million on orders from the Commodity Futures Trading Commission (CFTC). Tether is in soup for falsely claiming USDT stablecoin backing against actual fiat USD at all times. And Bitfinex is culpable as the crypto exchange violated a previous agency order.

As per an official press release from CFTC, USDT tokens held the 1:1 USD peg for only a quarter of the period between 2016 and 2018. The federal regulator also accused Tether of mixing reserve funds with the company’s corporate funds and holding reserves in non-cash products.

“…instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves.”

read an excerpt from the press release

Tether has rubbished CFTC’s claims in a statement released soon after.

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