Negative Publicity & Tether
Bitfinex and Tether, a party related to Bitfinex, have been receiving negative press and social media commentary regarding an alleged lack of transparency and completed audits. This attack is persistent and coordinated, and is based on innuendo, lies, and misdirection. We are staying focused on our business, and getting the audits completed, but it is impossible to ignore the constant stream of defamatory and malicious claims. We are taking concrete steps to improve our communications, including more regularly sharing information and insights, but, for the time being, we want to offer our shareholders some comments that may be useful when encountering critics.
Specifically, much of the online discussion concerns the question “how can tether be created at night and on weekends? Tether has no banking — it must be fake!” While it is true that both Bitfinex and Tether have had banking issues in the last six months, we certainly have had access to banking, but for a limited audience. Since April, the vast majority of all Tether issuances have been occurring through Bitfinex.
Because Bitfinex and Tether have common principals and banking, there is no limit to the timing or amount of money that can flow between the two entities even if inbound and outbound customer wires are limited. Bitfinex holds the vast majority of its customer USD balances in the form of USD bank balances. Bitfinex typically only holds less than 20M Tethers for customer withdrawal. When that balance approaches zero, Bitfinex moves money (typically $20M) from the Bitfinex bank account to the Tether bank account at the same bank in order to purchase additional tether from Tether Limited. To be clear, when this happens, cash is credited (or removed) from Bitfinex’s balance sheet and debited (or added) to Tether’s. This can be done electronically, day or night, on weekends and on holidays.
The reason for the continuing creation of Tethers is simple: demand from verified Bitfinex customers. What are customers using it for? Tether recently added the following page to help answer that question. The principal use case for Tether is exchange arbitrage. Bitfinex simply acts as an aggregator of customer demands for bulk creation and acquisition of Tethers. Its balance sheet impact is completely neutral as to Bitfinex—as to Tether, every issuance of Tethers (a credit to its liabilities) is matched by a corresponding debit, or addition, to its assets, as described above—and has nothing to do with the USD lending market. Also, all of the Tether flows and balances are very transparent, which clearly corroborates the truth. Given Tether’s public and verifiable nature, fraud would be easy to detect if it were to occur.