Another Black Swan Incident Of USDT Disclosed, When Will The Trial Of Justice Come?

4 min readMay 10, 2019

A USDT incident again! The New York Attorney General’s office has alleged that crypto exchange Bitfinex lost $850 million and subsequently used funds from affiliated stablecoin operator Tether to secretly cover the shortfall.

Such case has not astonished us since this is not the first time that Tether and Bitfinex have got the account problems.

On February 8, 2017, an author named Bitfinex’ed published an article called “The Audio Recordings Bitfinex doesn’t want you to hear”. The multiple recordings included in this article show that Tether and Bitfinex are discussing bank fraud, money laundering, and even admitting that they even considering doing fraud.

An executive at Tether, Phil Potter, even admitted in the leaked recording that the company had set up a company account in Taiwan to play shell games with banks. At that time, he was not only the head of Tether but also the chief strategy officer of Bitfinex.

A few months later, Phil Potter officially resigned as Chief Strategy Officer and said that “With the worldwide expansion of Bitfinex, I, as an American need to re-examine my position in the team.”

In April 2017, due to financial fraud, Tether’s three bank accounts in Taiwan were banned. Coincidentally, in January 2018, Friedman LLP, which was previously in charge of Tether’s auditing business, announced that it had cut business ties with Tether.

On January 24, 2018, an anonymous report read that, as of January 4, 2018, Tether had issued a total of 91 additional USDTs. The report also raised the question: Does Tether transfer USDT to Bitfinex wallet without receiving the US dollar, and uses USDT to buy low-priced bitcoin for making profit or manipulation.

As I said before, there are huge loopholes in Tether’s mechanism, which may give the digital currency field a shock at any time. Popular stable coin Tether has announced 1:1 redemption of USDT to fiat currency, that is “every release of USDT will deposit a margin of 1$ to the bank account, and the USDT will be automatically destroyed when the user converts it to US dollar”. However, Tether has never disclosed the USD account to the public, while the additional released USDT has been flowing into the Bitfinex wallet. Under such an environment where the accounts are covert, there is no audit of authoritative institutions, nor the big four accounting firms are willing to provide an endorsement.

As of now, USDT, issued by Tether, is the king of stable coins. Between 2017 and 2018, USDT quickly seized the stablecoins market by the rise of Ethereum, dominating 90% of stablecoins market. Due to the lack of competitors, although the USDT incidents occurred frequently in the past year, it did not affect the relative stability of USDT.

No supervision, over-issuance, misappropriation of funds, covert audit, etc., are gradually reducing the user’s trust towards USDT, eroding the foundation of the USDT building. It’s difficult to tell which incident will totally destroy it.

So what about the future development of stablecoins?

There are three solutions, alternative digital currency, regulation and audit, and scientific mechanism. 1) The simple solution is to replace. As the incidents of Tether and Bitfinex frequently occur, many small-scale stablecoins can take the opportunity to seize the market, gradually collapsing the dominating position of USDT; 2) Regulation and audit, if USDT seeks to maintain the current stablecoins mechanism, a transparent regulatory mechanism and highly transparent audit work are essential; 3) Making a more scientific and intelligent mechanism to limit the black box operation of the platform, which is the smartest solution. Just like the introduction of index price in the delivery contract, making it impossible for the exchange to “cut leeks” through trading price.

We can see from the incidents that the initial stage of the digital currency can be said to be a land of no ownership. On such land, platforms can design their rules, from which the quality and the bottom line of a platform can be seen. In the face of huge profits, you can choose to be transparent and cautious, and be responsible for investors, or select black-box operations to collect unjust wealth. The choice has nothing to do with the size of the platform but depends on the original design intention of the platform. Fortunately, investors have become more reasonable in continuous emerging incidents. It is only a matter of time before the unreasonable mechanism and the irresponsible business platform being eliminated. The final trial of justice of the digital currency circle will be coming soon!