The largest stable coin issuer has been fending off allegations of impropriety for years. With the NYAG case ending in a settlement, can we finally let this go for good?

On the 23rd of February, a settlement was finally reached between the New York Attorney General’s office and stablecoin issuer Tether, finally ending the saga of FUD once and for all. Or did it?

Although the settlement did not require Tether to admit any wrongdoing and came with a relatively small fine, some pundits remain concerned that this bit of drama is not over yet, and that there could still be turbulent times ahead for by far the largest and most liquid stablecoin on the planet.

But why is that? Why, after all these years of speculation, would people still not be ready to let the story go after the NYAG seemingly said, “well you’ve been naughty, but as long as the lesson is learned you’re free to go about your business.”? While many crypto enthusiasts are ready to dust off their hands and are claiming loudly that any further discussion of the issue should be laughed off the internet, there are not baseless grounds for trepidation to remain.

Let me clear: this is an opinion piece and speculation, and it’s my firm belief that even an entire collapse of Tether itself would not fatally harm the crypto industry. Some may take this article as another desperate attempt to keep the controversy going by someone who wants the industry to suffer a hit, but this not my intention. Rather, in keeping with the bitcoin narrative, it is important to keep our eye on the centralised players in the industry who might not be acting in good faith, especially when they’ve gained such influence and importance as Tether has.

Bitcoin and other cryptocurrencies are here to stay. However, in a world dominated by narratives, a loss of trust in Tether could be a future catalyst for one of the industry’s infamous price swings, the onset of the next bear market, or some such other calamity designed to strip ordinary investors of their bitcoin holdings and allow the institutions we now know for sure are interested to scoop up a greater share of the market. Like I said, speculation galore, but an idea I find compelling to an extent.

First, let’s cover the good news from Tether’s standpoint. The fact that they were not required to admit any wrongdoing is a big win, and something around which the rest of the narrative they use will be built. Secondly, the fine they were issued was minimal at best. Thirdly, the result of this case has boosted their public profile and helped to create a stronger narrative in their favour.

Tangentially positive is the fact that nothing seems to have come from one of the biggest rumours which was that quite apart from not having backed their issuances, they and their parent company were using those unbacked tether to purchase bitcoin and hence drive the price higher. The theory goes that by doing so they could then sell the bitcoin at a huge profit, capitalising on the enormous FOMO their purchases had caused, and then use the profits of those sales to actually back their Tether. If true, this would be fraud of monumental proportions, but it remains speculation and the action taken by NYAG would suggest it was not the case. If there had been compelling evidence, I feel there is very little chance that authorities would have allowed the case to be settled on the terms it was. Which doesn’t say it never happened, just that at least the evidence is weak.

In the bad news column we have scathing comments from the NYAG; a requirement to disclose reserve holdings every quarter; and a complete ban on operating within New York, which as one of the world’s financial landmarks could be seen as quite a liability.

Attorney General Leitita James didn’t hold back in her assessment of what Tether had been up to, stating that their claims of being backed 1:1 by dollar assets at all times were a “lie”; that they made false assurances that lost funds were “safe and secure” when they were actually entirely inaccessible; that they operated illegally in New York while claiming not to; that they “recklessly and unlawfully covered-up massive financial losses to keep their scheme going”; and that in a period during 2017 they were entirely unbanked.

Claiming that this is a complete nothing burger is being dishonest with yourself.

While the narrative being woven around this case is that the FUD is over, it would be prudent to acknowledge that the final word so far is: no, Tether has not always been 1:1 backed, which means although the company hasn’t been forced to admit it, the FUDsters actually had the right of it.

In practical terms, this may not matter much moving forward if the legislative matters are truly over. While we can all acknowledge the fact that Tether has been shady in the past, in reality it never led to any drastic reckoning and as long as they’re behaving properly now, the danger is over.

That hinges on two things being true: that legal proceedings won’t be taken again by New York or any other jurisdiction, and that Tether actually manages to comply with the now legally mandated disclosures. Considering their extreme reticence to do so in the past, that may not be a dead certainty. I sincerely hope it is and that Tether is able to prove that their activities are now above board, but it’s not delusional to wonder if they will.

It’s sad to have this cloud hanging over crypto for so long, and baffling to me that Tether remains the most popular stablecoin on the market and the only dollar denominated trading pair available on many exchanges. In researching the Tether situation and reading between the lines of this legal result Tether isn’t a company I greatly appreciate. I think we’d all sleep a lot more soundly with a more ethical option taking pride of place.

In closing, I would urge cautious optimism, rather than the absolutist positions we see from many quarters. If there is one thing that’s true, it’s that crypto is in an excellent position compared to where it was a year ago. However it’s also true that the prices we’re seeing are highly extended, and the moment for a retest of some of the previous highs that were so decisively smashed through these past months could be on the cards. While Tether is not all crypto, and all crypto is not Tether, a resurfacing of these problems could be the perfect narrative institutions need in order to gobble up your coins. Stay Safu.

Researcher and writer on topics that interest me and may interest you too. This blog is a tool for my own understanding.