Tether and Bitfinex confirm USDT is not fully backed by fiat, only 74% of tethers backed with cash

Legal representatives for Bitfinex and Tether confirm the widely held suspicion that USDT is not one-to-one backed by US dollars.

Court documents confirm tethers are only 74 percent backed, and those holding tokens are "Subject to the risk of default, insolvency, inability to collect, and illiquidity."

In February of 2019, Tether updated the content on its website to specify that USDT reserves "May include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities."

Updates to the language around Tether's claims of "One-to-one" backing with dollars had been changing since early 2018, with growing suggestions that USDT is not fully backed.

30th, 2019, Tether had cash and cash equivalents of $2.1 billion, representing 74 percent fiat backing of outstanding USDT, according to Bitfinex's legal counsel Stuart Hoegner.

25th, New York Attorney General Letitia James issued a preliminary injunction against iFinex, the company that owns Bitfinex and Tether, preventing Bitfinex from accessing a $900 million line-of-credit provided by Tether Ltd indefinitely.

In response to the accusations, Tether and Bitfinex claim the statute leveraged by the NY AG to issue the preliminary injunction, the Martin Act, does not apply to the facts and circumstances around Bitfinex's line-of-credit.

As a result, it seems that Bitfinex is claiming that Tether does not necessarily need to keep its reserve of fiat held in Tether Ltd and that Bitfinex should have access to the loan that was provided.

As noted by Hoegner, even if Bitfinex fully draws on the remaining $200 million left in its line-of-credit from Tether, then USDT would still have 68 percent backing.

Among a number of other arguments, the legal representatives for Bitfinex and Tether claim that fractional reserves are not a novel concept.