Bitfinex and Tether Request Courts Remove NYAG's Restrictions

Tether, Ltd., a Hong Kong-based firm that issues the USDT stablecoin, has asked a US court Judge to be more lenient by allowing it to use its cash reserves - while the New York Attorney General (NYAG) conducts its investigation.

At present, the NYAG is carefully examining the business operations of Tether Ltd. and cryptoasset exchange Bitfinex.

NYAG Is Seeking A 90-Day Injunction

As detailed in court papers, submitted on Monday (May 13th, 2019), the legal representatives of both parties have not been able to decide what Tether’s management should be allowed to do with its cash holdings and other company assets.

The NYAG does not want Tether Ltd. or “any affiliated entity” to use the stablecoin issuer’s funds while US prosecutors are conducting their investigation. The NYAG’s office is also pursuing a 90-day injunction against IFinex, Inc.

Court Order Filed To Prevent Bitfinex, Tether From Doing Business In New York

Meanwhile, the attorneys representing IFinex are seeking a 45-day injunction which includes allowing companies or individuals affiliated with Tether and Bitfinex to be able to redeem USDT.

On April 25th, 2019, the NYAG had issued a press release in which it mentioned that Attorney General Letitia James had obtained a court order against IFinex. The court order was filed in order to prevent both IFinex subsidiaries, Tether and Bitfinex, from operating in the state of New York.

The Office of the Attorney General (OAG) had confirmed that an investigation against IFinex regarding the alleged “fraud being carried out by Bitfinex and Tether” was ongoing. Attorney General James had stated (at that time):

Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.

Tether Ltd. Needs To Use Cash Reserves To Maintain Business Operations

Last week, a New York State Supreme Court Judge had ordered both parties to provide additional information related to the order.

On Monday (May 13th, 2019), attorneys representing IFinex submitted a letter to the court which noted that they would abide by certain changes made to the preliminary injunction. However, IFinex’s attorneys clarified that the would not be waiving their previous motion which involves completely vacating NYAG’s Ex Parte order.

Commenting on the matter, IFinex’s attorneys said: 

If [Tether Ltd.] simply held the proceeds in cash, the company would not earn the money required to fund its operations.

A letter from the OAG noted that “bona fide holders of Tether (USDT) should be able to redeem those tokens for cash, as Tether has long represented to the market...Further, the OAG’s proposed modifications do not restrain Tether from placing the reserves in legitimate interest-bearing or similar cash equivalent accounts, as the OAG understands Tether to have previously done.”

Tether’s Employees Must Not Be Paid With Company’s USDT Reserves

IFinex’s management also believes that there’s no legitimate reason why the NYAG should recommend or prevent Tether holders from redeeming USDT. Notably, IFinex’s legal team claims that NYAG’s statements and recommendations are a “gross overreach” as the OAG is not a regulatory authority.

According to statements issued by the NYAG, Tether’s employees should be paid for work they’ve done. However, the company must not pay salaries by using USDT reserves, the NYAG said.

Bitcoin Proponents Debate a Potential Hard Fork for Inflation

  • Bitcoin Advisory founder Pierre Rochard is asking bitcoin community to consider the implementation of inflation.
  • Rochard argues that transaction fees alone may not be enough to sustain miners in the future. 

Pierre Rochard, founder of consulting firm Bitcoin Advisory, has addresed a debate in the bitcoin community over whether transaction fees will be high enough to support the network’s continued use. 

Bitcoin Inflation Debate

According to Rochard, who is also a self-proclaimed proponent of BTC’s scaling solution lightning network, the community must question whether transaction fees alone will be enough incentive for miners in the future. As outlined in the original white paper, bitcoin’s total supply is limited to 21 million coins. 

While the final BTC is not expected to be minted until after the year 2140, the block reward will continue to decline over the coming century. Miners, who facilitate transactions and secure bitcoin’s network, will have to rely more upon transaction fees as a source of income, as BTC rewards continue to fall.

Some are now arguing that bitcoin may need to introduce perpetual inflation to remedy the situation, which would mean altering the original 21 million BTC total supply.

Rochard said, 

There’s an open question of will transaction fees be high enough – or in the aggregate total – enough to provide transaction finality...will bitcoin have to hard fork in inflation?

The Bitcoin Advisory founder asked the community to consider the state of altcoins, many of which operate on an inflationary protocol. Rochard acknowledged that confirmation bias may be clouding judgment in regard to bitcoin’s managed development and that the potential for inflation should at least be considered, 

There’s confirmation bias. We’re all very bullish on bitcoin, I certainly am, and so we want to pick out arguments and facts that support our position rather than trying to see all sides of a debate and have a more balanced view. Or at least have some level of uncertainty and self awareness in how much support we actually have for our arguments.

Future of BTC

Rochard pointed to an article written in 2015 by Silicon Valley entrepreneur Ryan Selkis, under the name TwoBitIdiot, arguing that bitcoin needed inflation despite the controversy of the idea. He also pointed to the increase in block size from 1MB, which at the time was considered blasphemous to bitcoin’s protocol, as analogous to the idea of introducing inflation. 

Rochard concluded that the bitcoin community has “a good 10 to 20 years to argue about it,” before inflation becomes a pressing issue. 

 

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