Tether’s major customer has claimed that Tether lends stablecoins to customers in exchange for crypto. This claim further challenges Tether’s founding promise that tokens are issued using real dollars.
Alex Mashinsky of the crypto lending platform Celsius Network borrowed from Tether and counts it an equity investor. Tether, in part of a lending agreement, has given its so-called USDT units to Tether in return for well-known cryptocurrency.
“If they have enough collateral, liquid collateral and bitcoin, ethereum, etc. . . They will mint tether against them,’ he stated.
He said that new USDT are issued for these loans and then destroyed after the loan is closed,’so it doesn’t permanently increase USDT’.
These comments are in contrast to Tether’s promises that it will only issue units of the largest stablecoin in the world for hard currency.
Tether’s strong one-to-one connection with dollars is the basis of a $70bn stablecoin that lubricates worldwide crypto transactions , and provides a seamless way to access crypto assets like bitcoin and ethereum.
The stablecoin operator launched in 2014 and has been subject to intense media and regulatory scrutiny. It states in its current Terms of Service that only money will be accepted at the time of issuance. Last updated May 2020, the terms explicitly prohibit digital currencies like bitcoin from being accepted for payments.
Tether was fined by the US federal and state regulators this year for misrepresenting its reserves. The Commodity Futures Trading Commission (NY attorney-general) found that Tether had misrepresented its reserves. Tether neither denied nor admitted to these findings. Both cases were about what Tether did to the dollars it received, rather than how it issued them.
It is well-known that the stablecoin market relies on one-for-one transactions against dollars. This feature was highlighted in Tether’s whitepaper seven years ago. A US-based executive said that US dollars are the only currency you should have to redeem or create [USDT] coins.
Tether published a primer on how USDT is issued from its inventory in May, separate from its terms of service.
According to the primer, ‘newly issued USDT must be backed with collateral’ and that tokens that have been redeemed (USDT) cannot be released into circulation until new collateral has been provided.
Tether refused to comment on the FT’s request for information. Tether also declined to give details about its USDT lending process or clarify if it was issuing tokens through the program.