The hidden danger of tether USD by Bitfinex coin exchange
Bitfinex is the second largest Bitcoin/Cryptocurrency exchange with over $800 million daily trading volume. However, it’s a tricky exchange too – we mentioned it in the “top Bitcoin hack” list recently in relation to their August 2016 hack when over 120K Bitcoins went missing.
Bitfinex is “issuing” a special USD Tether token to be used in “crypto/usd” trading pairs to simulate a US dollar. Each USDT token is supposed to be backed by one US dollar, but no one actually knows whether it is. Bitfinex has not been audited for a while, moreover it has withdrawn from the US market supposedly due to license difficulties.
There are opinions that Bitfinex is issuing USD Tether tokens “out of thin air”, that is, just like a central bank would print more fiat money that’s not backed by anything. At the same time, a lot of major cryptocurrency exchanges use USD Tether in their trading pairs.
The problem with USDT being not backed by actual US dollars is that if it were true Bitfinex would not be able to process USD withdrawals at some point. Any consecutive problems with Bitfinex as the second largest Bitcoin exchange would hit Bitcoin and cryptocurrencies in general.
One should keep in mind that some sort of a “USD token” is necessary for most traders for trading pairs, but the transparency of USD tether leaves much to be desired. The Bitcoin community is demanding transparency from Bitfinex as well as a guaranteed match to actual US dollars.