Tether – the issuer of the world’s largest stablecoin, USDT – is once again being pressured to demonstrate the quality of its reserves.
On Tuesday, the company was ordered by a U.S. court in New York to provide detailed financial documents for evaluating claims around the asset’s backing.
An ‘Extraordinary’ Request
The order is part of an ongoing 2019 lawsuit claiming that Bitfinex and Tether conspired to inflate Bitcoin’s price by pumping the market with unbacked Tether tokens. At the time, plaintiffs alleged that both companies’ actions led to over $1.4 trillion in damages.
In a letter exchange between Tether’s attorneys and the judge, the former attempted to block the release of requested documents. These included ““general ledgers, balance sheets, income statements, cash-flow statements, and profit and loss statements.”
As the attorney argued, such requests were “incredibly overboard” and “unduly burdensome” to expect Tether’s compliance.
“That is the B/T Defendants’ entire business,” he wrote. “Plaintiffs do not provide any basis for demanding such an unbounded production, particularly in light of the broad categories of documents the B/T Defendants have already agreed to produce in response to other RFPs.”
Tether’s attorney added that the company had already agreed to provide “sufficient to establish USDT reserves”. The firm has already produced related documents for the Commodities and Futures Trading Commission and New York Attorney General regarding USDT reserves.
“If those documents were sufficient for the CFTC and the New York Attorney General, they are sufficient for Plaintiffs,” they wrote.
However, the New York judge disagreed, ultimately siding with the plaintiffs and repeating their request for documents. “The documents Plaintiffs seek are undoubtedly important, as they relate to the backing of USDT and cryptocommodities transactions,” the judge wrote.
Contrary to Tether, the judge found that the plaintiff’s request was “not overly broad,” and necessary to assess its claims about USDT backing. For instance, they intend to analyze whether unbacked USDT token transfers “were strategically timed to inflate the market.”
Tether Reluctantly Agrees to Comply
Tether issued a short follow-up statement on Wednesday, reiterating its position that the plaintiff’s claims about its reserves are “meritless.”
It also clarified that its dispute with the court only surrounded the scope of documents to be produced. In the company’s view, it already had agreed to provide documents “sufficient to establish the reserves backing USDT.”
“As always, we look forward to dispensing with plaintiffs’ baseless lawsuit in due course,” read the statement.
Tether has grown accustomed to facing scrutiny about its stablecoin reserves, and is quick to lash back at public criticism of its operations. In August, the issuer released a lengthy statement disputing “disinformation” from the Wall Street Journal on the matter.
In particular, Tether takes issue with suggestions that its reserves were in some way less reliable than other issuers. In reality, attestation reports from Tether, Circle, and Paxos show that the top 3 stablecoins are almost entirely backed by cash and U.S Treasuries. While Tether holds some commercial paper on reserve, it intends to remove this element by the year’s end.
While providing multiple attestations, Tether is yet to undergo a full reserve audit, leaving lingering doubts about its reserve status. Unlike audits, attestations only review a company’s balance sheet at an exact time of review. This leaves room to skew the numbers before the attestation period.
Tether has been sued for doing exactly this and other things in the past, in collaboration with Bitfinex. Both companies share the same Chief Technology Officer in the form of Paolo Ardoino.