he research arm of Bitmex exchange is back with another detailed and wide-ranging investigation. This time it’s Tether, the company and its U.S. dollar-backed token that frequently comes in for scrutiny. A typically well-researched post outlines whether there’s precedent for U.S. regulators shutting down the service, and explores allegations that tethers are not backed by fiat currency reserves.
In the last couple of months, everyone from Ari Paul to Weiss Ratings has weighed in on the Tether debate, seeking to address the legitimacy of the company and its likelihood of coming unstuck at the hands of U.S. regulators. Now Bitmex Research has chipped in, and while its report won’t be the last word on the matter, it may quell some of the more pointed criticisms labeled against the company and its opaque practices.
Blessed with the time, budget, and platform to dive deep into cryptocurrency projects, Bitmex Research is able to go where other investigative reporters can’t or won’t. Its forensic examination of Ripple, a fortnight ago, earned widespread praise, and its Tether report is another big hitter. The opening abstract dismisses some of the more persistent concerns surrounding the company and its USDT stablecoin, but supports others, noting:
This tallies with a growing consensus which holds that Tether probably does have the assets to back its dollar-based tokens, but is still susceptible to regulatory pressure, specifically that emanating from the U.S. Most critics aren’t as vehement as Tether maximalist Bitfinexed, the pseudonymous Twitter account synonymous with scrutinizing the company’s operations.
Bitmex: Tether Doesn’t Need a Blockchain
Investigating the November hack that saw $31 million of USDT stolen and subsequently isolated by Tether, Bitmex writes: “The hacking incident demonstrated that Tether is effectively in complete control of the ledger, as they can force a hard fork at will and reverse any transaction…This raises the question of why Tether bothers to put the database on the Bitcoin and Ethereum blockchains at all — it would be far cheaper for Tether to create its own public database without needing to pay fees to the miners.”
Bitmex Research then goes on to acknowledge Tether’s famous lack of transparency, but notes “Lack of transparency does not indicate fraud”. This tallies with a recent report by security researcher Nicholas Weaver. Bitmex also concurs with Weaver that Tether is likely to encounter issues in regards to money laundering and accusations of enabling criminality through the degree of anonymity that the service provides:
Calculating Bitfinex to have been making $10 million in exchange fees a day at the height of bitcoin mania, Bitmex opines that Tether likely has plenty of assets, either directly, or indirectly via Bitfinex, should the need arise. The report then extensively deals with rumors that Tether is seeking to set up banking operations in Puerto Rico, where regulators take a more hands-off approach. It’s possible, opine the report’s authors, that all of the fiat currency backing tethers is stored in the Puerto Rican banking system. While far from perfect, this arrangement – if true – shoots down the allegation that Tether is a Ponzi scheme with nothing backing it.
The report finishes by looking over the many unlicensed money transmitters the U.S. has shut down in the past including Liberty Reserve and E-Gold, before making some robust recommendations:
It concludes: “If Tether is shut down, history shows us that there is a risk some users may lose access to their funds, perhaps temporarily. Therefore we do not recommend holding Tether for the long term”.
Do you think Tether is at risk of being shut down by U.S. regulators? Let us know in the comments section below.
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