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$900m Tethers ‘borrowed’ by Bitfinex are Toxic


Up to $900 million Tethers have been borrowed by cryptocurrency exchange Bitfinex to prop up it’s growing debt, after failures with its payment processor Crypto Capital. We have no way to value the USDT ‘stablecoin’ accurately.

After many, many months of concern and speculation on the part of the crypto community, light is finally shining through to the murky situation at the heart of Tether.

For those few who don’t know, a recent legal filing has uncovered numerous serious irregularities at Bitfinex and Tether. The situation is complex, but essentially:

  • Bitfinex has been having problems with their payment processor for a some time (in addition to long-term banking issues)
  • Hundreds of millions of dollars are locked up with the payment processor, Crypto Capital
  • These funds may have been frozen due to government action, or there may have been fraud/theft involved – it’s unclear
  • Bitfinex’s staff have been getting increasingly frustrated and anxious about their inability to pay withdrawals
  • Bitfinex ‘borrowed’ up to $900 million from Tether’s reserves to cover the shortfall
  • Those USDT are now ‘backed’ by the debt from Bitfinex
  • Bitfinex and Tether did not disclose this publicly at the time

What comes through loud and clear in the report is the sheer informality and lack of professionalism within the organisations involved. The exchanges between Crypto Capital and Bitfinex are recorded in the document. Bitfinex’s ‘Merlin’ repeatedly begs his contact at Crypto Capital for money but is stonewalled time and time again. The whole episode looks incredibly amateurish and shady, like a customer begging a third-tier exchange to process a ‘stuck’ withdrawal after weeks on end. We know how that one can end.

New USDT, old problem

Wednesday saw 300 million new USDT issued by Tether. Given what we now know about Bitfinex and Tether, and how those USDT are ‘backed’, we have to ask: are they worth anything?

USDT had a brief wobble as the news broke, but is currently stable (as a stablecoin should be). Right now, though, there is no way to value USDT. We don’t really know the quality of the debt that backs around a quarter of all USDT. Will it be repaid? Will Bitfinex default? To what extent can Tether be considered a fractional reserve? Is the true value of USDT $1, $0.90, $0.80?

Until we have answers to that question – and much more besides – Tether is as toxic as a sub-prime mortgage bond.


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