Is Tether backed by hot air?

By Ben Munster

Tether today confirmed to Decrypt that its stablecoin was “completely stable and 100% backed.” But it declined  to say what, precisely, it’s backed by.

Earlier today, we covered a mysterious amendment to the Tether website—first noted by freelance blogger BitFinex’ed on Reddit — that appeared to walk back the company’s original claim that its tethers were fully backed, one to one, by dollars in its banking partners’ reserves. Now, according to the updated statement, its “reserves” include “cash equivalents,” “other assets” and “receivables” that it has received in exchange for loans delivered to “affiliated entities.”

When pressed via email, a spokesperson who gave his name as “Kaspar Bitfinex” declined to comment on the precise nature of these underlying assets, and nor would he comment on whether this does indeed constitute a precarious “fractional reserve banking model.” (In which Tether plays the market with the dollars in its reserves.) Instead, it simply asserted that the updated statement, made in February, was an effort to ensure its “Terms of Service and Risk Disclosures” remain “appropriate and up to date.”

“Our most recent revisions,” the spokesperson added, “were intended to update our disclosures to reflect Tether’s growth and operations and to be consistent with the types of disclosures used by other institutions.” He/she/it then reiterated that that the reserves consist of  a “combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether,” and that “Tether’s reserves always equal or exceed the number of issued Tethers.”

(Mr., er, Bitfinex also said Tether users had been notified of this change at the time—we wonder why these definitely real customers didn’t point this out.)

From its launch in January, 2015, Tether has been controversial. Charges of price manipulation have followed it around for years, and the SEC is said to be investigating it. Throughout its contentious history, analysts, reporters and pundits have questioned whether the coin is, indeed, backed up by sufficient reserves.  While the latest farrago casts some doubt over Tether's claims of solvency, it does nothing to make sense of the specifics of the statement: who the affiliated entities are, what the reserves consist of, etc.

Nor is it clear whether this has always been Tether’s business model or if it changed the statement on its website to reflect a more recent strategy shift. (We have asked.)

As it stands, it appears that Tether is backed by PR statements alone.

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