The Best Case Scenario for Tether’s Activities in 2017

In 2017 Tether was issuing unbacked Tethers. This has been confirmed as part of their settlement with the New York Attorney’s General office. As an exercise in trying to ensure that I have not become overly biased around Tether what I will attempt to do in this article is construct the best case scenario for how Tether’s business was operating.

First, I think it is valuable for us to establish several facts before we start creating a speculative narrative.

  1. From March of 2017 until September 15th of 2017 Tether did not have a bank account. (Settlement) (My copy)
  2. The only account they did have was one in the name of their General Counsel, Stuart Hoegner, at Bank of Montreal. This account never had more than $61.5 million dollars in it. (Settlement) (My copy)
  3. During this period the number of Tether’s issued increased from about 50 million to 442 million, each of which was claimed to be backed by the corresponding currency in Tether’s reserves. (Settlement) (My copy)
  4. Between June of 2017 and September of 2017 Bitfinex did have an account at Noble Bank. Tether claims this account is where the remainder of the Tether backing for this period was held. (Settlement) (My copy)
  5. During this period that account received only two deposits deposits from only two customers, neither purchased tethers. (Settlement) (My copy)
  6. During this period the Tether platform was closed for issuance and redemption, and the only way to get Tethers was through Bitfinex. (Archive)

The above facts seem to contain some contradictions. So what would a generous explanation of what was possibly going on look like? During this time Bitfinex treated fiat and tethers equivalently for their customers. They could deposit dollars and withdraw tethers, or vice versa. However, we know that the Bitfinex Noble account that was supposedly holding the reserves only received two deposits, neither to purchase Tethers. So where was the money for Tether possibly going? Crypto Capital Corp. Crypto Capital Corp served as the primary interface for Bitfinex customer deposits and withdrawals for much of 2017 and 2018.

So Bitfinex customers would deposit their fiat with Crypto Capital Corp, but often when it became time to withdraw they chose to withdraw in Tethers. As such Bitfinex would now hold that fiat on their books and the money they owed Tether would increase.

When Tether finally did secure banking on September 15th of 2017, with their reserves to be verified later that same evening, Bitfinex had to move quickly. Rather than try to move the Tether backing out of Crypto Capital Corp they instead chose to make a quick intrabank transfer from their account at Noble’s to Tether’s. From Bitfinex’s perspective it was the same to them since it was all still fiat on their books, and from Tether’s perspective it was just them receiving the funds they were owed from Bitfinex.

Do I think this is the complete story? No. And even if it is that means Tether and Bitfinex were blatantly lying to the public for years and likely trying to deceive the auditing firm they had hired to look into their books. This was purely a personal exercise for me to come up with the most good faith explanation of these facts as I could. However, they don’t deserve the benefit of the doubt and I have argued they are bad faith actors.

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