The Bitfinex & Tether Scandal Shows Why You Need to Keep Your Funds in Your Own Wallet

The Latest Chapter in the Bitfinex & Tether Saga

In order to make sense of this convoluted story, you first have to understand Tether (USDT). Tether is a stablecoin created by Tether Limited, and is linked to the US dollar. In theory, 1 USDT should always equal 1 dollar. Tether has claimed for years that every USDT in circulation was backed 1 to 1 by US dollars they held in reserve (though they have never been audited by an independent third party to prove this). For years, rumors had circulated that Tether Limited did not actually have 1 dollar for each USDT, and that they were essentially “printing” USDT out of thin air.

Bitfinex is a centralized cryptocurrency exchange operated out of Hong Kong, which has also experienced a number of controversies over the years. Interestingly, Tether Limited and Bitfinex, Inc. both share some management and shareholders.

A story broke in April of this year that brought the controversy surrounding these two companies to the forefront of the crypto world once again. Bitfinex had, somehow, lost $850 million of “comingled client and corporate funds”. The New York Attorney General’s office accused Bitfinex of trying to cover up this astounding loss by borrowing USDT from Tether Limited.

So…where did the $850 million go?

It appears that Bitfinex was working with a company called Crypto Capital, a payment processor which handled Bitfinex’s fiat withdrawals and deposits. Bitfinex sent the $850 million to them, and at some point, was unable to get it back.

Crypto Capital claims this is because the funds were seized by the governments of Poland, Portugal and the United States, but according to the NY AG, Bitfinex disputes this.

Are you starting to feel dizzy yet? Don’t worry, there’s more.

Remember how Tether Limited always claimed that USDT was backed 1 to 1 with USD holdings? More recently, they’ve stated that USDT is NOT 100% backed 1 to 1 with US dollar holdings, but only about 74%. Some believe this could mean that the $850 million loss isn’t fully covered by the USDT they received.

It seems that in order to get around this whole problem, Bitfinex launched it’s “Initial Exchange Offering” or “IEO” of a new token called LEO, which is redeemable for USDT. Bitfinex aims to raise $1 billion during this IEO, which is specifically designed to compensate for this unresolved $850 million dollar loss.

Yeah, it’s a mess…

If just reading about this gave you a migraine, you’re not alone.

Unfortunately, when you keep your money on a centralized exchange like Bitfinex, you can be affected by this sort of drama whether you like it or not. If everyone had tried to exchange their Tether for USD on Bitfinex while this was going on, they would not have had enough to cover it.

Now, we should be fair and state that this is an ongoing issue, and the full facts have yet to be revealed. It is possible that that Bitfinex and Tether are the victims of unfair FUD on the internet. But it’s also possible that this is exactly what it appears to be on the surface.

Regardless of what you believe, when there is smoke and smoke and more smoke, at some point a reasonable observer is going to conclude there is probably a fire.

A Headache-Free Way to Manage Your Crypto

Wouldn’t it be better to not have to deal with this kind of nonsense? Of course it would.

But what about stablecoins? While USDT has recovered for the moment, it would probably be wise to explore other options.

Stablecoins like TrueUSD (TUSD) offer an alternative way to store USD on a hardware or software wallet.

Faast allows you to swap and manage dozens of different cryptocurrencies directly from your own wallet, and swap them for TrueUSD at any time. If you ever do want to exchange them for fiat currency, you can then send your holdings to a reputable exchange linked to your bank account.

God knows there is already enough controversy and sketchiness in the crypto world…don’t make your experience managing digital assets more of a hassle than it needs to be.

Switch to Faast today and see how easy crypto can be.

Further reading: Tether vs TrueUSD: Which Crypto Dollar is Worth YOUR Dollars?


Follow Faast on Twitter

Faast on Facebook

Faast Subreddit

Faast Telegram Announcements Channel