UPDATE (24 October 19:25 UTC): This article has been updated to include comments from a Bitfinex spokesman.
Shortly before 1:00 p.m. ET Wednesday, Tether, the company behind the dollar-linked stablecoin of the same name, announced via Twitter that it had destroyed 500 million tether (USDT) tokens.
Previously, those tokens were held in an account known as the “Tether treasury.” The past few weeks have seen massive influxes of USDT to the Treasury, particularly after the cryptocurrency lost parity with the U.S. dollar last week amid questions about Tether’s access to banking services.
From Oct. 14, when USDT started to slip below $1.00, to Oct. 23, 680 million USDT were transferred to the company-controlled Treasury wallet. All of these transfers came from an address controlled by Bitfinex, a cryptocurrency exchange that overlaps with Tether in terms of ownership and management.
Bitfinex’s cold wallet’s balance has fallen by around 100,000 bitcoin since early September, leading some to speculate that the exchange has been spending bitcoin in order to take tether off the market – perhaps to push the exchange rate back towards the $1.00 mark, or perhaps even to exit the stablecoin business entirely.
As a result of these transfers, the supply of tethers in circulation has dropped by around a quarter in a week and a half, to approximately $2 billion. Now many of these tokens, in addition to having been taken out of circulation, have been “burned” or destroyed by the company.
Kasper Rasmussen, Bitfinex’s director of communications, said the action “does not have anything to do with defending dollar parity,” since both the exchange and Tether guarantee 1-for-1 redemptions. He denied that Tether is intentionally scaling back supply.
Tether tokens are redeemed “when the amount circulating exceeds the amount required for e.g. Bitfinex or Tether to operate,” Rasmussen said, and the reason most of the destroyed tokens came from Bitfinex’s wallet is that “Bitfinex is one of the main customers of Tether.”
In its announcement Wednesday, Tether said that it had not burned all of the USDT in the Treasury account, and that around 466 million USDT remain in the account “as a preparatory measure for future USDT issuances.”
True redemption?
The announcement characterized transfers of USDT to the Treasury as “redemption,” a process that Tether described in its original white paper.
The 2016 white paper specifies that USDT holders can redeem their tokens for U.S. dollars directly with the company. Tether maintains that every USDT token is backed by a U.S. dollar deposit, but has not convinced many skeptics that the cryptocurrency is in fact fully collateralized.
The anonymous anti-Tether campaigner “Bitfinex’ed,” however, disputed Tether’s characterization of transfers to the Treasury as a “redemption,” writing: “Not one person can come forward and say that they converted Tethers to dollars and got wired money from Tether.”
Rasmussen, the Bitfinex spokesman, claimed otherwise, telling CoinDesk: “Yes, direct customers of Tether are able to redeem USDT through Tether Ltd.”
But many others allege that it is not possible to redeem USDT tokens for dollars with Tether.
Burning match image via Shutterstock