Did you know, you can turn horse manure into actual money?
“It’s wild,” one horse farmer told Stable Management. “You can take this stuff that nobody wants and turn it into something of value.”
You can do something similar in the crypto word. It’s like Shitexpress, a service that delivered horse poop anywhere in the world for bitcoin. But now, instead of sending actually poop, you can send tethers, a stablecoin issued by a company of the same name.
Tethers are a major source of liquidity on the crypto markets. In lieu of the US dollar, you can use them to enter and exit positions in volatile crypto markets. As such, tethers are responsible for the health and wellness of dozens of crypto exchanges, like Binance, Huobi, Bittrex, OKEx, Poloniex and others, that don’t have direct banking.
When tether first entered the world in 2015, it was promised as an I.O.U. And for years, Tether Limited assured us that every tether was worth $1—as in, one actual US dollar that Tether had on hand that you could redeem your tether for.
Tether and its sister company Bitfinex, one of the largest crypto trading platforms by volume, are now being sued by the New York Attorney General. As court documents reveal the companies’ inner workings and how they handle Tether’s reserves, the question that keeps coming up is: “What is a tether actually worth?”
For a while, the world thought, well, maybe one tether is worth 74 cents, because in his first affidavit, filed on April 30, Stuart Hoegner, Bitfinex and Tether’s general counsel, admitted tethers were only 74% backed. In other words, Tether was operating a fractional reserve, kinda like a bank, but sans regulatory oversight or deposit insurance.
Tether updated its terms of service on February 26, to let you know tethers weren’t fully backed, but if you weren’t paying close attention—i.e., checking the Tether website every day—you may have missed it. (Tether says it can amend, change, or update it terms of service “at any time and without prior notice to you.”)
Now, it’s looking like one tether is only worth what someone will give you for it. If someone gives you bitcoin for a pile of tethers, hurray for you, that is the value of your tethers. And if the person who got your tethers can pass them off to someone else for bitcoin, or another cryptocurrency of value, then yay for them! It’s called the greater fool theory, and, so far, it seems to be working. Tether is still trading on par with the dollar.
But if you take those tethers to Tether, the company that has so far shoveled nearly $3 billion worth of them onto the markets, and say, “Hey, can I redeem these for dollars, like you have been promising all these years?,” they will most certainly tell you, “Sorry, no.”
Are you verified?
Apparently, you can only redeem tethers under certain conditions, such as you bought your tethers directly from Tether—and you are not a US citizen.
In Hoegner’s recent affirmation, filed on May 21, he says you have to be a “verified” Tether customer to redeem tethers. He writes:
“Only verified Tether customers are entitled to redeem tether from Tether for fiat on a 1:1 basis. There is no right of redemption from Tether on a 1:1 basis for any holders of tether who obtained the tokens on a secondary market platform and who are not verified Tether customers; on the contrary, such holders of tether have no relationship with Tether and are expressly precluded from redeeming tether on a 1:1 basis for Tether.”
In that paragraph, Hoegner reminds us three times (just to make sure we understand his point) that whoever you are and however you ended up with your tethers, the company is under no obligation to give you cash for those tethers.
As confirmed in Tether’s terms of service, only those who bought tethers directly from Tether—aka “validated users”—can redeem tethers. Anyone who got tethers on the “secondary market,” meaning, an exchange, is not able to redeem those tethers.
What’s interesting here is that, as court docs reveal, from November 2017 to December 2018, you could only buy tethers for cash directly from Bitfinex. You could not buy them from Tether. In December 2018, you could once again buy tethers directly from Tether. According to Tether’s definition, Bitfinex is a secondary market.
Further, if you live in the US, you have zero chance of ever redeeming your tethers for cash. Hoegner says that as of November 23, 2017, Tether ceased servicing customers in the US, and at this time, “no longer provides issues or redemption to any US customers.”
To summarize, if you are a US citizen holding a bag of tethers, Tether will give you nothing for them. If you bought tether on Bitfinex or acquired them via a trade on some other exchange, Tether owes you nothing. And if you don’t like that, too bad, because Tether also says in its terms of service that when you buy tethers, you waive any rights to “trial by jury or proceeding of any kind whatsoever.”
Wait, this doesn’t look like a dollar!
If you are one of the lucky few who purchased your tethers via Tether’s website—and you are not a US citizen—and would like to redeem them, you may or may not get actual dollars back any time soon.
In its terms of service, Tether says it “reserves the right to delay redemption or withdrawal” of tether in the event of illiquidity—meaning, if they don’t happen to have cash on hand today. The company also says that it reserves the right to pay you “in-kind redemption of securities and other assets” held in its reserves.
Basically, that equates to, you could get shares of iFinex (Bitfinex and Tether’s parent company) or LEO tokens (a new token Bitfinex recently created) or whatever is in the soup bowl that day. And you may end up with something that has as much real world value as horse manure—just not as good for the roses.
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