Bitmex Research released a detailed report on Tether today, February 19th, explaining the reasons why Tether is most likely backed by adequate fiat reserves and what regulatory issues Tether is most likely to face in the future.
Tether is a digital token that is backed by a fiat currency and is supposedly pegged 1: 1 to the US dollar. Due to Tether’s lack of enough publicly published bank audits, rumors have spread that Tether actually does not have enough fiat reserves to redeem all Tether tokens for US dollars if necessary.
The Bitmex report attempts to refute these rumors by pointing out a possible correlation between the rising cash reserves of the International Financial Entities (IFE) banking category in Puerto Rico under the “Lack of Transparency May Not Indicate Fraud” section.
Cointelegraph recently reported that Puerto Rico may become a “crypto tax haven”.
The Bitmex reports suggest Puerto Rico-based Noble Bank as a possible candidate for holding Tether’s cash reserves, largely because it is one of two full reserve banks in Puerto Rico that publicly operates crypto.
However, despite the Bitmex report, there is still no way to know for sure where Tether’s cash reserves are, because even though their website’s “Transparency” page lists their current balances and claims, they are “regularly checked” and “fully checked.” transparent”. actually broke ties with her New York-based accountant in January before full exams were publicly released.
The report also covers Tether’s hack of around $ 31 million in November 2017, which resulted in the company essentially requiring users to update their software in order to initiate a hard fork and freeze the stolen funds.
The Bitmex report writes that this “shows that Tether is in complete control of the ledger as they can force a hard fork and roll back any transaction at will – although there may have been no prior doubts about Tether’s control”.
The report then questions why Tether is “bothering to put the database on the Bitcoin and Ethereum blockchains in the first place,” and argues that it would actually be cheaper for Tether not to pay miners fees and create its own public database .
The report also mentions the subpoenas delivered to Tether and the Bitfinex exchange in December 2017 that the relationship between the two companies was officially announced, meaning that they have an almost identical management team.
Bitfinex’s involvement in Tether had been publicly questioned by critics, including best-known anonymous blogger Bitfinex’ed, who viewed the deal as suspicious in part due to the fact that no third party review of Tether’s reserves had yet been published.
In response to the Vitriol published online by Bitfinex’ed against Bitfinex, the exchange has vowed to take legal action.
Bitmex’s research report writes that this relationship between Bitfinex and Tether was relatively public even before the temporary disclosure on Tether’s “About Us” page, citing Tether founder Craig Sellars’ Linkedin, which lists both companies.
The report ends with a listing of case studies of various online money-sending services that have been shut down by regulators over the years due to anti-money laundering violations. This correlation between these now defunct services and Tether leads Bitmex to the conclusion that Tether “can also attract criminals and ultimately suffer the same fate”.
Bitmex has two specific insights from its research on Tether that it also recommends investors not to hold on to for the long term:
“1. Reform the system to include KYC / AML procedures that allow the operator to easily block transactions or freeze funds. In order to do this […] Tether would just turn into a traditional (or full reserve) bank.
2. Carry on as before and you risk to be closed by the authorities at some point. “