Justin Sun, the CEO of TRON (TRX) has announced that he will be postponing the $20 million USDT rewards program until there is further clarity regarding the recent legislative storm surrounding Tether and popular cryptocurrency exchange Bitfinex. Interestingly enough, the move follows statements of Tether’s general counsel Stuart Hoegner that the stablecoin is not, indeed, 100% backed by USD or liquid assets.
Tether’s Not 100% Backed
USDT’s dollar peg has been a subject of controversy for as long as it has been existing. However, following the events of late, the general counsel of Tether, Stuart Hoegner, has said in an affidavit on Tuesday, April 30th, that the stablecoin is not, indeed, backed 100 percent by cash and cash equivalents.
“As of the date I am signing this affidavit, Tether has cash and cash equivalents (short term securities) on hand totaling approximately $2.1 billion, representing approximately 74 percent of the current outstanding tethers.” – Wrote the counsel.
Moreover, the counsel also outlined that there are additional reserves available but they are in less liquid form. He also compared the situation with the commercial banks’ policy to operate under a “fractional reserve” system where they keep a small fraction of the customers’ deposits on hand, deploying the remaining through investments.
This confirms the fractional reserve concerns many from the cryptocurrency community have, especially after Tether silently updated its Terms of Service back in March.
$20M USDT Incentive Plan Postponed
Cryptopotato reported back in March that Justin Sun’s TRON has partnered up with Tether in order to launch a TRC20-based version of the popular USDT stablecoin. In order to commemorate the event and to further incentivize users to convert their USDT holdings into TRC20-based USDT, TRON announced a $20 million reward program.
The joint effort has so far turned out to be productive, as around 3.5 percent of its total supply is already based on TRON’s network.
However, a few days ago, the tides had seemingly turned as the New York Attorney General Letitia James announced that she has managed to obtain a court order against iFinex Inc., the operator of cryptocurrency exchange Bitfinex, and the issuer of USDT – Tether Limited. The NYAG alleges that Bitfinex has covered up a loss of $850 million by providing itself with access to $900 million worth of Tether’s reserves, from which the exchange has taken at least $700 million.
Bitfinex has since responded to the court order, saying that it was written “in bad faith and riddled with false assertions.”
While we have yet to see how the entire thing will unfold, the fact of the matter is that consequences are already here.
Justin Sun has said in a blog post that the $20 million TRON-USDT incentive plan will be postponed until further information on the Tether and Bitfinex controversy becomes available. However, he’s also added that TRON will continue supporting USDT:
TRON’s technical support for USDT will continue, along with swaps from Omni-based USDT to TRON-based USDT. I’d like to finish by thanking the TRON community for their enthusiasm, and our partners for their loyal support. The TRON team will continue working hard to bring lasting value to the network.