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Tether Not a Ponzi, but prone to shutdown – Regulation Bitcoin News

The research arm of Bitmex Exchange is back with another detailed and far-reaching investigation. This time, it’s Tether, the company, and its dollar-backed token that comes in for scrutiny frequently. One typically well-researched post will explain whether there is a precedent for US regulators to suspend the service and investigate allegations that the cables are not backed by fiat currency reserves.

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Tether is back in focus

Bitmex Research: Tether Not a Ponzi, but Prone to Shutting DownFor the past few months, everyone from Ari Paul to Weiss Ratings has weighed on the Tether debate, trying to address the company’s legitimacy and its likelihood of being resolved by U.S. regulators. Now Bitmex Research has gotten involved, and while its report won’t be the last word on the matter, it manages to quell some of the clearer criticisms leveled at the company and its opaque practices.

Bitmex Research has the time, budget, and platform to delve deep into cryptocurrency projects and is able to go where other investigative reporters can’t or won’t. It is forensic investigation of Ripple, two weeks ago, received widespread praise, and his tether report is another big hitter. The opening summary dismisses some of the ongoing concerns about the company and its USDT stablecoin, but supports others, noting that:

There is some skepticism about Tether, with allegations that the system is not backed up by adequate reserves. We think there is no place for skepticism. We found possible evidence in published financial data that the effects of tether could be visible in the Puerto Rico banking system. Tether is likely or has already encountered regulatory issues and we believe this should be the main concern of Tether owners in the long run.

This is in line with a growing consensus that Tether likely has the funds to support its dollar-based tokens but is still facing regulatory pressures, particularly that originating in the US. Most critics are not as vehement as the tether maximalist Bitfinexed, the pseudonymous Twitter account synonymous with reviewing the company’s business.

Bitmex: Tether doesn’t need a blockchain

Bitmex is investigating the November hack in which USDT 31 million was stolen and subsequently isolated from Tether: “The hacking incident showed that Tether has complete control over the ledger as they force a hard fork at will and roll back any transaction can do. This begs the question of why Tether bothered to put the database on the Bitcoin and Ethereum blockchains in the first place. It would be far cheaper for Tether to build its own public database without paying fees to the miners. “

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Bitmex Research then acknowledges Tether’s famous lack of transparency, but notes that “lack of transparency is not indicative of fraud”. This agrees with one current report by security researcher Nicholas Weaver. Bitmex also agrees with Weaver that Tether is likely to run into money laundering issues and allegations of enabling crime through the level of anonymity the service offers:

[Tether’s] Features may make it attractive to criminals, just like Bitcoin … regulators are unlikely to be particularly pleased, and banks will likely be skeptical of Tether. Tether also requires the use of a bank to hold the USD reserves needed to support Tether. As a result, many banks are likely to be very cautious about this issue. If Tether is accepted as a customer, it may violate banks’ compliance procedures, such as anti-money laundering rules.

Bitmex Research: Tether Not a Ponzi, but Prone to Shutting DownPuerto Rico: a banking paradise?

A lack of audits but an abundance of money

Bitmex calculates that at the height of the bitcoin madness, Bitfinex was making $ 10 million daily in exchange fees, and believes that if necessary, Tether is likely to have numerous assets directly or indirectly through Bitfinex. The report then delves into rumors that Tether is looking to build banking in Puerto Rico, where regulators are taking a rather straightforward approach. It is possible, believe the report’s authors, that all of the fiat currency bands are stored in the Puerto Rican banking system. While this arrangement is far from perfect, it throws back – if it is true – claims that Tether is a ponzi scheme that has nothing to be said for.

The report concludes with a look at the many unlicensed money transmitters the U.S. has closed in the past, including Liberty Reserve and e-gold, before making some robust recommendations:

From our point of view, Tether therefore has two options: 1. Reform so that the system includes KYC / AML procedures that allow the operator to simply block transactions or freeze funds … 2. Continue as it is and risk to be closed by the authorities at some point.

It closes: “If Tether shuts down, history shows us there is a risk that some users will lose access to their funds, possibly temporarily. Therefore, we do not recommend holding tether long-term. “

Do you think Tether could be shut down by US regulators? Let us know in the comments below.

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Tags in this story

AML, BitFinex, BitMex, KYC, Liberty Reserve, Money Laundering, N-Featured, Ponzi, Puerto Rico, Regulation, Tether, Tether, USDT

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