A new complaint has been filed against leading stablecoin issuer Tether over its alleged "unlawful and deceptive" practices.
The class-action lawsuit, filed in the District Court of Southern New York, says that Tether is engaged in "immoral, unethical, oppressive, and unscrupulous" business practices.
Plaintiffs Matthew Anderson and Shawn Dolika say that Tether is lying about its cryptocurrency being backed 1:1 by the U.S. dollar. (RELATED: Nobody seem to know where that money actually is.)
Already twice this year, Tether's 1:1 claim has been challenged in court. This latest case references that court challenge and several others in the company's checkered legal history.
Tether was reportedly quick to respond to the new lawsuit. The company wrote that "shameless money grabs, for which this lawsuit is a textbook example, will never be dignified by way of paying one Satoshi in a settlement."
One Satoshi, by the way, is the smallest unit increment of Bitcoin. It is equal to 0.00000001 Bitcoin, or about $0.000477 U.S. dollars.
Tether plans to "aggressively litigate and dispense" with the filing. Then it will pursue recompense from Anderson and Dolika.
If Tether disappeared tomorrow, would it affect any of the other cryptos?
Back in February, New York Attorney General Letitia James ordered Tether and the crypto exchange Bitfinex, its sister company with common shareholders and management, to stop all trading and pay up $18.5 million in fines.
This occurred after state investigations concluded that Tether lacks sufficient reserves to back the number of Tether USDT tokens currently in circulation.
Later in October, both companies became embroiled in a fiasco that led to a $41 million fine for Tether and a $1.5 million fine for Bitfinex. The Commodity Futures Trading Commission (CFTC) issued both fines.
"The CFTC alleged that Tether only held sufficient fiat reserves in its accounts to back the number of Tether tokens in circulation for little more than a quarter of the time over a 26-month period between 2016 and 2018," reported Decrypt.
"Four days after the CFTC fine, Alex Mashinsky, the CEO of crypto lending platform Celsius, told Financial Times that Tether occasionally issues its dollar-pegged cryptocurrency as a loan in exchange for cryptocurrencies like Bitcoin and Ethereum; this contravenes the company's own terms and the fundamental principles of stablecoins. Mashinsky elaborated that the stablecoins issued are destroyed when repaid, so as not to increase the circulating supply."
In its own defense, Tether has made attempts throughout this past year to be more transparent. In August, for example, it released a self-stated assurance report conducted by a company called Moore Cayman. This report reveals that almost half of Tether's reserves are currently in the form of commercial paper and certificates of deposit. Only about 10 percent come from actual cash and bank deposits.
Tether, just to be clear, is its own blockchain cryptocurrency. It is supposed to be backed by U.S. dollars, hence why it is referred to as a stablecoin. It differs from Bitcoin, Ethereum and other popular cryptocurrencies.
"Stablecoins are so named because they are pegged to a fixed quantity of another asset, such as a dollar," explains The Economist. "This means their prices should hardly fluctuate at all."
"There are two main ways in which they are backed. In one category are coins, for instance Tether, that claim to be fully backed by liquid assets such as cash or safe bonds sorted in banks," it is further explained about how stablecoins are supposed to work.
More related news can be found at Bitraped.com.
Sources for this article include:
Please contact us for more information.