In brief

  • The CEO of Tether's offshore bank Deltec has refuted recent claims that USDT stablecoins are not actually backed by US dollars.
  • Deltec's deputy CEO Gregory Pepin stated that Tether's reserve "is fully backed and more than what is in circulation."
  • He also said that neither crypto exchange Bitfinex nor Tether own any shares in the bank.

Recently, a Medium post titled “The Bit Short: Inside Crypto’s Doomsday Machine” and published by a pseudonymous user called “Crypto Anonymous,” raised several concerns in regard to crypto firm Tether and its USDT stablecoin.

However, most of the allegations listed there are unsubstantiated, Gregory Pepin, deputy CEO of Bahamas-based Deltec Bank & Trust—Tether’s offshore banking partner—stated during the latest episode of the “Unchained Podcast” published today.

One of the key points in Crypto Anonymous’s post was the fact that from January 2020 to September 2020, the amount of all foreign currencies held by all Bahamian domestic banks increased by only $600 million—while Tether issued around $5.4 billion worth of USDT during the same period. This, the user claimed, suggested that the lion’s share of those stablecoins wasn’t actually backed by real US dollars.


Not a domestic bank

However, according to Pepin, Crypto Anonymous was looking for Deltec’s holdings in the wrong place. He explained that the Bahamas is a so-called offshore jurisdiction and there are two categories of banks—domestic and international.

"In the domestic bank there is (sic) two type of license linked to it: you have what they call the authorized dealer license and the authorized agent license. Deltec do own an authorized agent license which is a license that allowed them to custody Bahamian dollars."

Tether market cap increases above $12 billion
Tether dominates the stablecoin market. Image: Shutterstock

According to the guidelines published by The Central Bank of The Bahamas, banks that are licensed as authorized agents "can conduct trust and other fiduciary business for residents and non-residents."

Since Deltec doesn't have an authorized dealer license, Pepin added, the bank can't hold cash and deposits in Bahamian dollars.


"At the same time, because we cannot hold those Bahamian dollars, we cannot serve local customers. So what we have is we have, along with that authorized agent license, we have an international bank license, or I think it's called restricted license as well.”

Banks and trust companies with restricted licenses are "allowed to carry on business for certain specified persons which are usually named in the licence," according to the central bank's guidelines.

Therefore, Deltec's holdings are not supposed to be reflected in the corresponding section of the central bank's report that Crypto Anonymous cited, said Pepin.

"We are not a domestic bank for the report of deposit," he noted, adding, “So we are not a domestic bank aside of that authorized agent license, but that is an irrelevant business for us, and not much must be reported.”

USDT is backed by a reserve

Speaking about allegations that USDT might not be fully backed by the corresponding amount of US dollars, Pepin also stated that “every Tether is backed by a reserve.”

"Their reserve is fully backed and more than what is in circulation. We can see it firsthand, so I can confirm you that," said Pepin.

However, when asked explicitly whether all the dollars that back USDT are held by the bank, he replied that they are "held by Deltec and probably other institution."

"As far as I can tell, they're [Tether] are following the regular treasury management you would imagine for managing such reserve. Nothing beyond what you would expect for treasury management,” Pepin added.


Commenting on the fact that Tether “famously” hasn’t ever had a true audit of its books—and considering that Deltec holds at least part of its reserve—Pepin stated that the bank conducted a due diligence procedure in the past. In its own way at least.

“We didn't really want to follow any article out there,” Pepin noted, adding, “So we started to do an investigation by literally doing a deep dive due diligence with them and we were able to apply that very famous rule 'don't trust, verify,' and we kind of verified and we continue to constantly verify that they are pretty much, uh, following, uh, what everybody is expecting them to follow.”

Rumors ‘don’t make any sense’

As Decrypt reported, Deltec recently stated that it has a “large position” in Bitcoin (BTC) but didn’t disclose which clients this was for. Some crypto experts have already raised concerns in the past that if Tether is at least partially backed by Bitcoin, this could limit investors’ ability to remove funds if BTC’s price crashes.

"We are aware of recent statements by Deltec Bank & Trust Limited about the purchase of digital tokens for and on behalf of their customers. Tether does not outsource decisions about its reserves. Deltec does not purchase digital tokens for and on Tether's behalf," Tether General Counsel Stuart Hoegner told Decrypt at the time.

Today, Pepin echoed this statement, adding that “it doesn’t make any sense” for Tether to buy Bitcoin via Deltec.

"I mean, why would they go to us, a Bahamian 70-year-old bank, to purchase Bitcoin when they are one of the biggest players in this industry?" said Pepin, laughing.

At the same time, crypto exchange Bitfinex, which shares a leadership team with Tether, has been rumored to own a large stake in Deltec. But that’s all that it is—just rumors, Pepin stated.

"We've seen a lot of rumors like apparently Tether and Bitfinex are shareholders of Deltec. I told them 'no' but yet they still believe it's the case. What do you want to do, you know what I mean? At one point in time you just let that happen," he added.


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