Stabilizing the Currency War: How to properly fight the US authorities?
This is the story of one of the world's largest stable coins, fighting the world's largest government.
The stabilized currency USDT suffered a heavy blow from the US government – the United States, New York State, the US company Tether and its parent company iFinex initiated a lawsuit. Stabilizing coins refer to cryptocurrencies with relatively stable prices. A common practice is to price 1:1 anchors.
On April 25, 2019, New York State Attorney General Letitia James announced that his office had obtained a court order prohibiting iFinex and Tether from conducting virtual currency activities that harm investors.
The USDT is the world's largest stable currency, with a monopoly market share of 96%. It has fallen slightly today, but even at the end of 2018 it fell to a low point and accounted for 73% of the market. iFinex is also the operator of Bitfinex, one of the top ten exchanges in the same time. This sudden lawsuit has caused a huge impact on both USDT and Bitfinex's business.
Bitfinex was accused by the New York State prosecutor of the loss of $850 million and the secret misappropriation of Tether's reserve funds for USDT. According to the investigation report released by the prosecution, Bitfinex handed over $850 million in customer and company funds to a Panama-based company, Crypto Capital, without any written contract. They never disclosed this loss to investors.
The prosecution also alleged that in order to make up for the shortfall, the top executives of Bitfinex and Tether participated in a series of conflicting corporate transactions. Bitfinex reached out to Tether with a cash reserve of up to $900 million. According to documents submitted by the prosecution, Bitfinex has benefited from Tether's cash reserves by at least $700 million. These funds were originally used for Tether's commitment to support the USDT1:1 exchange of US dollars.
"Our survey has determined that operators of the Bitfinex exchange also control Tether virtual currency. They mask a significant loss of $850 million in mixed customer and corporate funds," said New York State Attorney General Letitia James.
The New York State prosecutors said they were protecting investors for justice. But in USDT's view, this is a struggle in the field of power from the battle of stable currencies.
“This is a typical American underworld behavior.” Bitfinex said in the telegraph group through shareholder Zhao Dong.
Court order filed by the prosecution in New York, USA
For USDT, litigation is not the worst. The real blow is the destruction of confidence.
After the US New York State prosecutor released the news, the price of the stable currency USDT showed a brief panic-like fall within 4 hours. The price of the US dollar fell from 1:1 to 1:0.9799. However, the price gradually rose and stabilized.
The bigger market panic spread across bitcoin prices. The BTC price fell 6.3% in 3 hours, from $5530.32 to $5182.71.
The user has run out. Within 9 hours, more than 13,377 BTC was transferred from the Bitfinex exchange, and the destination was unknown. The BTCs are worth nearly $91 million. Then, nearly half a million ETHs were transferred from the Bitfinex exchange, valued at nearly $73 million.
Some even found that Bitfinex himself seems to have joined the fugitive army. At 21:40 on April 26th, Beijing time, the Bitfinex wallet transferred a total of 24.43 million USDTs to the Tether Treasury wallet. After 40 minutes, Bitfinex made a second transfer. The Bitfinex wallet transferred about 5 million USDTs to the Tether Treasury wallet. The value of the cryptocurrency transferred by two transfers was as high as nearly $29.43 million.
A series of panic attacks have been spread around the Internet, and there are even rumors that Bitfinex is "coming soon." Everything that happened within 24 hours made a large number of users close to the collapse of USDT and Bitfinex.
USDT price fell panic within 4 hours
Stabilizing the battle of coins
Bitfinex called this fight with the New York State prosecutors "American underworld behavior", and behind it lies the commercial dispute of global stable currency.
The USDT is the world's largest stable currency, monopolizing the entire stable currency market with more than 70% share. The company that issued the USDT company Tether, its parent company iFinex, is located in Hong Kong and is not subject to the jurisdiction of the US government.
New York State of the United States has a positive attitude toward cryptocurrencies – but it is conditionally positive. They believe that cryptocurrencies must be compliant and subject to financial regulation, and they have been pushing relevant policies.
In September 2018, the New York State Financial Services Authority (NYDFS) approved two compliance stable currencies, GUSD and PAX. This is the first stable currency recognized by the government in the world.
The relationship here is quite subtle. The USDT is not a compliant cryptocurrency recognized by the US government and is not regulated by the US government. But it has a monopolistic dominance in the entire market. Obviously this is not consistent with the compliant cryptocurrency that the New York State government wants to see.
In this turmoil, Bitfinex emphasized that the prosecution in New York State has no law enforcement power against itself and protests that this is an ultra vires operation.
The US New York State prosecutor repeatedly emphasized in the announcement that Bitfinex's behavior would “endanger New York State investors” as a basis for law enforcement. The legal support behind it is that there is “long arm jurisdiction” in the United States: when the defendant’s residence is not in the state of the court, as long as there is some “minimum contact” between the defendant and the seat of the court, and the plaintiff’s claim and When such a connection is concerned, the court has personal jurisdiction over the defendant and can issue a subpoena to the defendant even if the defendant is outside the state or even abroad.
Faced with a panicked market, iFinex demonstrated its determination to fight the US government at all costs. Within 15 days of the fight against the New York State prosecution, iFinex made two strategic counterattacks.
First of all, it is the counterattack of the human heart battlefield – they choose to "satisfy everything" to appease users and restore market confidence.
They denied the accusations of the New York State prosecutors and published more details of the allegations. The official website of Bitfinex Exchange announced that the New York State prosecutors maliciously wrote content. Bitfinex's $850 million in deposits at Crypto Capita was frozen due to investigations by its banking service provider Crypto Capita. It is not a "loss" and is only temporarily seized and protected. They are working hard to take remedial measures to release these funds.
For the improper delivery of funds alleged by the prosecution, iFinex called this a fair deal. Under the contract between the two parties, Bitfinex used a stock worth $60 million as a collateral to pay an annual interest rate of 6.5% and borrowed about $700 million from Tether.
Tether's lawyers also acknowledge that only about 74% of USDT is currently supported by cash and short-term bonds. He said that USDT had revised the terms of service in March 2019, and revised "1:1 to the US dollar" to "75% dollar anchor and 25% iFinex stock secured loan."
At the same time, Bitfinex lets users believe that this will not affect their interests. Bitfinex official reply said that although the funds were frozen, it will not affect user withdrawals. Bitfinex's profit in 2018 was about $400 million, and its expenses were only $12 million. The company used a portion of its profits for user withdrawals.
Second, it is a comeback on the commercial battlefield – Bitfinex has launched a large-scale launch of its own platform currency (LEO) IEO fundraising. IEO's English full name is Initial Exchange Offerings, the first transaction is issued. It refers to the project to issue tokens and raise funds with the exchange as the core, and directly go online. Bitfinex does not hide the purpose of the IEO: Bitfinex is in desperate need of a working capital period during the $850 million freeze. The fundraising method used by IEO is USDT, and the fundraising target is USD 1 billion.
Bitfinex's IEO can be described as a two-bird "Jesus counterattack", while solving the current urgent problems of Bitfinex and USDT. On the one hand, if the goal of $1 billion can be achieved, Bitfinex's $850 million funding freeze will be resolved. On the other hand, with USDT as a means of fundraising, it has achieved the goal of recycling USDT in the market, and has reduced the market liquidity of USDT to a state of 1:1 with cash reserves.
Can these actions achieve their goals? It depends on how many people in the market are willing to believe in the future of Bitfinex and USDT and vote with money.
More importantly, Bitfinex and USDT have released a signal to all users through this series of actions: "We will not run, we will fight the US government to the end."
The world of cryptocurrencies is like pirates, and the market is their own territory. In this world, their relationship with power is not up and down, only cooperation or becoming an opponent.
There is only one battlefield for power, and the company that insists on fighting will lead the battle to the battlefield of the people and the business. Here, user confidence is their biggest weapon.
USDT and Bitfinex understand this. If Chinese cryptocurrency companies understand this, they will live better in this cruel but free world. (Star Daily)