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Crypto Story of the Day
Tether and Bitfinex have requested to block a Freedom of Information Law (FOIL) request from CoinDesk to have the New York Attorney General release “documents attesting to [USDt’s] reserve composition.”
Yesterday, crypto news outlet CoinDesk filed a FOIL request to have the New York Attorney General (NYAG) release documents pertaining to USDt’s “reserve composition.” In response, Bitfinex and Tether, via their attorneys, appealed to the New York Supreme Court to block the request.
According to court documents, the 2 firms are seeking to prevent documents related to the February 2021 settlement from being released via the FOIL request. The documents claim that Tether differentiates itself from competitors by “investing its assets in a proprietary investment portfolio that allows Tether to maintain competitively advantageous profitability.”
The ability of Bitfinex and Tether to offer their services “depends upon reliable and high throughput banking relationships, which are not a guarantee in the cryptocurrency industry.” The documents provide JP Morgan CEO Jamie Dimon’s 2017 assertion that BTC is a “‘fraud’ that would ‘blow up’” to illustrate the challenges crypto businesses have faced in maintaining banking relationships.
To overcome these challenges, the 2 firms have “spent years cultivating non-public relationships with financial institutions… capable of processing a high volume of high value transactions efficiently.” However, these “financial relationships,” along with “Tether’s internal investment strategy” could be “replicated by competitors” were they made public.
Tether’s “[i]nvestment returns” are described as providing a “cushion of assets relative to liabilities, which provides more assets for customers to redeem against.” This isn’t a feature that all stablecoins provide, according to the documents. The firms view the possible disclosure of such information as having the ability to “tilt the competing playing field against Tether.”
The NYAG’s investigation of Bitfinex and Tether, announced in April 2019, revolved around a USD 850 million loan the stablecoin firm made to the exchange. The case’s settlement didn’t involve admission of wrongdoing and confirmed that Tether and Bitfinex hadn’t engaged in an alleged “cover-up” or “fraud.”
According to Tether, over the course of the investigation the firm provided the NYAG with “more than [2.5 million] pages of documentation to answer their questions…” During the nearly 2 years that the investigation was publicly known, USDt saw an inflow of roughly USD 32 billion. Since the settlement, USDt has seen a further inflow of about USD 31 billion.
Alleged wrongdoing by Tether has been an exaggerated fixation by some in the crypto space for years. This fixation has persisted despite the settlement of the NYAG’s investigation, which relied on the aggressive Martin Act, described by WSJ’s Editorial Board as allowing prosecutors to “call almost anything fraud.”
CoinDesk’s request for documents reviewed by the NYAG should be indicative that their contents are likely benign and unlikely to undermine confidence in Tether by its users. Having said that, considering the unfounded allegations Tether has been subject to and its legitimate privacy interests as a business, it’s reasonable that Tether would block the request.