NYAG probe of Bitfinex and Tether ends - so what happens now?
Chief Development Officer
How is going to affect the crypto industry? Let's take a look.
The infamous New York Attorney-General (NYAG) probe on Tether and Bitfinex has finally ended, with the exchange agreeing to pay $18.5 million as a penalty for attempting to hide its large financial losses. Some have called this a loss for Tether, as it harms its reputation. Others have said that the low penalty fee acts as little punishment, meaning the company has avoided what could have been a potentially explosive outcome. However, the real question on people’s minds is how this will affect the crypto industry.
Bitcoin might dip
The simplest expectation from this Bitfinex and Tether legal case is that Bitcoin may very well fall, causing a significant price correction. Arguably, this has already begun to happen. Some think Tether’s integrity is important for the future of Bitcoin because most centralized exchanges use Tether (or USDT) as their main stablecoin of choice. A stablecoin is a cryptocurrency that is pegged to a fiat price or asset, allowing people to avoid volatility when they wish to take a break from trading. For many years, Tether was the only stablecoin available, and to this day, it is the most used one. Bitfinex has been forced to show that Tether was nowhere near as stable as they said it was, causing traders to get concerned over how they will handle their finances. This could lead to people getting apprehensive and pulling out of Bitcoin.
However, such a dip would only be temporary, as the result from the NYAG’s office is somewhat minimal, and Tether has not been outlawed or banned, so the general composition of the crypto market has been left almost entirely intact. Additionally, there are now plenty of (arguably more legitimate) centralized stablecoins that would be very happy to take their place: USDC, BUSD, TUSD are just some examples. But decentralized, censorship-resistant, and more transparent alternatives could take the fore.
DeFi Stablecoins might rise
With the NYAG’s office proving Tether to be suspicious, this is bound to drive some traders towards using other stablecoins. The last few years have seen the explosion of DeFi (decentralized finance) projects, and one of the most important developments on this front is DeFi stablecoins. Dai, a decentralized stablecoin created by the Maker Foundation, is the most popular DeFi alternative to Tether. It is also pegged to the dollar, like Tether, although it is slightly more volatile than the company would wish. The main difference is that it isn’t backed by dollars but by a variety of other assets.
Traders who work exclusively on DeFi platforms have been using Dai for around a few years now, and with the Bitfinex and Tether legal case coming to a close, some centralized platforms may choose to support it as well, as people will be eager for an alternative. Another DeFi stablecoin is DeFiDollar, which performs largely the same function as Dai.
Will Tether disappear?
The crypto industry has been apprehensive about Bitfinex and Tether for years, and the result of the probe vindicates many on that front. If enough exchanges choose to deny support for it and choose to use centralized or decentralized alternatives such as Dai or DeFiDollar, then Tether could soon disappear from the forefronts of the markets. Our prediction is that this will happen, perhaps within the year. Whichever way it goes we do not see it having a negative impact on Bitcoin or other cryptocurrencies and the transition could be fairly painless as the ecosystem is much more robust now. If anything, it may eventually help the markets as exiling Tether would bring light to more legitimate projects.
Chief Development Officer
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