$1mln bounty for tip offs on tether's 'stablecoin' backing

Stablecoins are pegged to other assets like the US dollar, which are held in reserve as collateral

A New York-based financial research business is offering the public a bounty of $1 million for tip offs leading to previously undisclosed details about crypto currency 'stablecoin' tether's backing.

Tether, which is used by crypto traders as a low cost and less volatile way of buying other crypto currencies like bitcoin, has faced growing scrutiny from regulators and law enforcement in the US over allegations about how it underpins the value of its coin.

So-called stablecoins are pegged to other assets like the US dollar, which are held in reserve as collateral.

Until 2019, $70 billion market cap tether claimed that every one of its coins in circulation was backed 'one-for-one' with US dollars.

But, amid probes from the New York attorney General and a $41 million fine from the US futures and commodities regulator, the firm now makes a more nuanced claim.

Every tether is always 100 per cent backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by tether to third parties, which may include affiliated entities.

As a result of tether's trading volume, which is estimated at 95 per cent greater than bitcoin's monthly trading volume, there are concerns tether may pose a systematic risk.

There have also been accusations that unexpected price movements in Tether have manipulated the price of bitcoin itself.

Hindenburg Research explained it has ‘doubts about the legitimacy of tether's backing due to the company's sparse disclosures’.

Since 2016, the firm has published reports on alleged illegality and bad practice from a number of high-profile companies, most notably including electric car manufacturer Nikola and gambling firm DraftKings.

It said: Tether is a key underpinning of the multi-trillion-dollar crypto market. Yet despite its repeated claims of transparency, its disclosures around its holdings have been opaque. The company claims to hold a significant portion of its reserves in commercial paper yet has disclosed virtually nothing about its counterparties.

Despite multiple regulatory sanctions over its alleged lack of truthful disclosure about its reserves, and despite tether now having a $70billion market cap, tether still refuses to provide transparency to the public on its holdings, it said.

It added that tether represents a 'growing threat to investors by encouraging disclosure related to a crucial part of the crypto markets, which are nearing 'systemic' size'.

As a result, Hindenburg is inviting investors to submit information on Tether's backing to the company for a chance to earn rewards in an amount up to $1 million.