Tether will pay $41 million to claim that its stablecoins are fully backed by US dollars

Tether, the world's largest issuer of stablecoins, has agreed to pay a $41 million fine to resolve claims by a U.S. regulator that it misrepresented that its digital tokens were fully backed by U.S. dollars.

The Commodity Futures Trading Commission alleged on Friday that from at least June 2016 to February 2019, Tether - whose digital tokens are pegged to fiat currencies such as the dollar - made misleading statements about having sufficient dollar reserves to back any of its stablecoins in circulation.

Stablecoins act as crypto-native dollars and a bridge between crypto and traditional financial worlds. They allow traders to enter and exit cryptocurrencies like Bitcoin more easily and are designed to have a fixed price and be hedged one-to-one at all times.

Tether has issued more than $69 billion in stablecoins as demand has increased, and critics have repeatedly questioned whether Tether's reserves are fully covered.

The CFTC order found that from September 2016 to November 2018, Tether only had sufficient fiat reserves in its accounts to fully cover the tokens in circulation on 27.6 percent of days.

The CFTC also ordered cryptocurrency exchange Bitfinex to pay a civil penalty of $1.5 million.

“This case underscores the expectation of honesty and transparency in the rapidly growing and evolving digital assets market,” said Rostin Behnam, Acting Chairman of the CFTC.

Tether settled the case without admitting or denying liability, according to the order. A statement claimed there was "no finding that Tether tokens were not fully backed at all times - simply that the reserves were not all in cash and in a bank account in Tether's name at all times. . . [Tether] has always maintained sufficient reserves and has always failed to comply with a redemption request."

It added that no suspected violations related to Bitfinex, whose owners also control Tether, have occurred after December 2018.

The two groups have previously been implicated in some of the most high-profile investigations in the US into the cryptocurrency sector. They settled an $18.5 million lawsuit in February with New York's attorney general, who accused them of deceiving customers about their reserves after they suffered a severe loss of funds when their payment processors' accounts were frozen.

The growth of stablecoins has drawn fresh scrutiny from global banking and market regulators that the tokens' operators could trigger a contagion in credit markets if they were forced to liquidate their reserves for any reason.