Tether has been ordered, as part of a market manipulation lawsuit that alleges USDT artificially inflated crypto prices, to reveal what backs its stablecoin.
Judge Katharine Polk Failla in the court order asked Tether to produce important documents relating to the assessment of USDT’s backing with US dollars. Evidence is needed to substantiate Tether’s claims of maintaining a treasury that fully backs the stablecoin. As such, Tether has to show documents to establish its USDT reserves, including account statements of banks and other institutions linked to its funds. Other documents like general ledgers, income statements, balance sheets, and cash-flow statements, as well as profit and loss statements, are needed.
USDT is the largest stablecoin in the world in terms of market capitalization. It is the third-biggest digital asset, after Bitcoin and Ether, with almost $68 billion in circulation. The question of what exactly supports or backs each USDT has dogged the project for years. Initially, Tether had claimed that its backed 1-to-1 with US dollars.
The New York Attorney General (NYAG), in 2021, concluded an investigation into Tether and its parent company Bitfinex with an $18.5 million settlement agreement. It found that they commingled company and customer funds to obfuscate $850 million in losses resulting from police action on one of its payment processor partners – Crypto Capital Corp. This meant that USDT was not fully backed for a period of time following November 2018. But now, Tether claims that its USDT tokens are 100% backed by its reserves. Part of the settlement demands that Tether submit quarterly reports detailing its reserves to the NYAG.
Various attestations and reports suggest that Tether’s reserves are split between assets such as the US and other Treasuries, cash and bank deposits, and money market funds. There are allegations that Tether issued USDT completely unbacked and printed out of thin air, and that the unbacked USDT was used to inflate Bitcoin’s price by being transferred to Poloniex and Bittrex.