In an affidavit submitted to New York State’s Supreme Court on April 30, Tether lawyer Stuart Hoegner confirms that Tether is 74% backed, and emphasises its holders are not at risk.
The filing comes in response to the court order issued against iFinex by the New York Attorney General’s Office (OAG) on April 25.
In the affidavit, Stuart Hoegner, General Counsel of Bitfinex and Tether since 2016, explains the issues Bitfinex have been experiencing with payment processing platform Crypto Capital since mid-2018. The filing highlights that Bitfinex voluntarily informed the OAG in early 2019 of its issues with Crypto Capital, which resulted in an investigation into Crypto Capital.
The filings then describe a December 2018 line of credit that was opened between Bitfinex and Tether, totaling $900 million. The line of credit, referenced in court filings by the OAG, obligates Bitfinex to repay any amount borrowed from Tether on “commercially reasonable terms”. To date, a total of $750 million has been utilized from this line of credit, which will be repayed over a 3 year period, at an interest rate of 6.5%.
Hoegner describes how separate counsel were retained for Bitfinex and Tether, who negotiated the terms of the credit facility over three months. Allegedly, the OAG was provided with a general overview of the deal at the time.
Tether’s Reserves—Fully Backed Until Recently
The recent change of language on Tether’s website came long before the line of credit was accessed. The wording changed from claiming to be fully backed 1-to-1 by US dollars to include a reference to the line of credit, specifically: “…from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”
In the affidavit, under a subheading of “Tether Holders Are Not At Risk,” Hoegner emphasises the sentiment that the recent changes have not impeded Tether’s ability to process redemptions USDT redemptions. He adds:
“As of the date I am signing this affidavit, Tether has cash and cash equivalents (short term securities) on hand totaling approximately $2.1 billion, representing approximately 74 percent of the current outstanding tethers.”
The lawyer then reminds the Supreme Court of traditional Federal Reserve systems, where banks are required to only retain 10% of their liabilities. Taking this into account, despite concerns that investors may have with Tether not being 100% backed, it is clear that Tether far exceeds traditional financial requirements.
The filings conclude with a stab at the court order issued by the OAG, describing it as “needlessly disruptive to Bitfinex” and succeeding “only in spreading misinformation to the markets.” Indeed, from the wording in the affidavit, it is clear that Tether are deeply upset with the conduct of the OAG in this matter.
Earlier this month, Tether announced a partnership with TRON, introducing a TRC-20 version of USDT on the TRON blockchain. At the time of writing, up to 3.5% of all Tether has migrated to the platform.