r/btc - Is Tether legal, illegal or a scam?

r/btc – Is Tether legal, illegal or a scam?


Dear friends,

I’m so conflicted on Tether and would love your opinions on Bitfinex/Tether. I know that there are both haters and supporters, and it would be great to dive into the facts and arguments on both sides.

From my perspective there are two important aspects to Tether. The first is the backing claim and the second is compliance with international AML laws.

Arguments that Tether is backed:

  • Bitfinex have over the years shown to be trustworthy and to be a pioneer in financial innovation. As an economist I’m impressed with how they handled the hack in 2016. Instead of doing it like Mt. Gox, they took another route. Faced with a terrible situation where 120.000 Bitcoins were gone, they made a haircut on all accounts and then issued the BFX token. That meant, if you had 1000 USD in your account, after the hack, you had 740 USD + 360 BFX tokens. Bitfinex promised to redeem the tokens over time with the income they would make over the years, which they did. It also meant that people were given a choice and access to liquidity, unlike normal bankrupcy proceedings.

  • For a period of time (as established from the NYAG investigation) Tether as a company didn’t have access to any banking. No bank account anywhere in the world. This is very problematic, but for now I’ll give them the benefit of the doubt. Why? As a business person I remember how incredible hard it was to get banking mentioning bitcoin. It was impossible. So how are you supposed to start a company in the first place? You have a choice. Dont innovate or try to be flexible and create a “company” account in your own name / other company name, and then try to figure it out as you build. Not saying this is good, but its a reality.

Arguments against that Tether is backed:

  • The NYAG investigation is damning. I would not consider this a win for Tether and Bitfinex. I would assume this investigation will awake the Dragon called the Department of Justice. While Tether have shown that the funds were available at the day of the “audits”, you cant know for sure if those funds are actually Tethers. From my understanding the funds of Tether was spread across several individual and company accounts. This increases the risk that something might go very wrong at some point. If you are supposed to safeguard funds on behalf of Tether on your private account, why not use those some of funds and invest in a raging bull market? This was my takeaway from reviewing the court documents, but if I’m wrong I would love to be corrected.

Is Tether legal in the first place?

  • From my understanding Tether and Bitfinex have an extensive KYC program in place. Tether vet individuals, businesses and exchanges wanting to use Tether. However, I’m not convinced they do enough, particuarly on the anti money laundering side. What kind of AML practises do they have in place?

  • Why are Bitfinex/Tether against the US regulators? Eventually you cant escape them anyway, so why not make an effort to comply, or try again?

Love to hear from you.

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