One of the most controversial cryptocurrency projects in history is Tether. For a long time, Tether (USDT) has been the only stablecoin in the market before the entry of others such as Paxos, BUSD and USDC.
Tether is a blockchain-based digital currency that is backed by traditional fiat currencies like the US Dollar, the EUR or the JPY, which are held in designated bank accounts.
What Does Tether Do?
Tether is a cryptocurrency that belongs to a class called the stablecoins. They aim to keep crypto valuations stable, unlike the regular cryptocurrencies that have volatile prices. Since the stablecoins have stable prices, they can be used as a medium of exchange and a mode of storage. They won’t serve as a medium for speculative investments like the other cryptocurrencies.
Tether can be described as fiat-collateralized stablecoins. This implies that a fiat currency such as the U.S. dollar, the euro, or the yen, backs each of the Tether coins in circulation. The stablecoin was developed to bridge the gap between fiat currencies and cryptocurrencies by offering stability, transparency, and low transaction fees to the users. USDT is pegged to the U.S. Dollar and has always maintained a 1-to-1 ratio with the dollar in terms of value.
However, there have been doubts over Tether’s backing of the minted USDT stablecoins, as some people don’t believe Tether Ltd. has the same amount in its bank accounts. Tether (USDT) is an important part of the crypto ecosystem as the BTC/USDT pair remains the highest BTC trading pair in the world.
Tether’s Numerous Controversies
Over the past few years, stablecoin issuer Tether has been embroiled in certain controversies. In 2017, the company was hacked, and $31 million worth of USDT tokens were stolen. This was followed by a hard fork of the stablecoin.
The controversy grew in January 2018 when the company failed to conduct the necessary audit to ensure that the real-world reserve is maintained. Rather, Tether announced that it would no longer be working with the audit firm. Regulators issued the company a subpoena, and many people within the cryptocurrency community began to doubt Tether’s transparency. Some crypto reports went as far as to claim that the bull run of 2017 was artificially induced as Tether was minting new USDT tokens that were not backed by actual fiat currencies in the bank.
In April 2019, Tether was involved in another controversy. This time, New York Attorney General Letitia James accused its parent company, iFinex Inc., of failing to disclose a loss of roughly $850 million of client and corporate funds from its investors. The funds were given to a Panamanian company called Crypto Capital Corp per court filings. This was done without any prior contract or agreement, and the funds were paid to the company to handle customers’ withdrawal requests. This led to Bitfinex removing $700 million from Tether’s cash reserves to cover up the loss after the funds went missing.
In an official statement, the companies stated that the filings were written in bad faith and it is filled with accusations. Bitfinex and Tether said the funds were not lost, but instead, they were seized and safeguarded.
Tether and the External Audit of its Books
Tether yielded and conducted an audit in March this year. Following the audit, the company verified that it had $35 billion in assets, similar to the amount of USDT tokens in circulation at the time.
The audit document was produced by Cayman Islands based accounting firm Moore Cayman. According to the document, the accounting firm examined Tether’s holdings as of Feb. 28, 2021, and found that the company held roughly $35.28 billion in total assets against total liabilities of $35.15 million.
The attestation in March was the first third-party verification the stablecoin issuer produced, indicating its reserves align with the amount of USDT in circulation since 2018. It was also the first produced by an accounting firm since September 2017.
The attestation led many people within the cryptocurrency community to believe that Tether’s USDT tokens were backed by actual assets. However, keep in mind that attestation isn’t the same thing as an audit. Attestation evaluates whether the figures being examined by the auditor are accurate, while auditing is designed to find potential risks in an organization. It is worthy to note that no stablecoin issuer has successfully secured an audit. This includes stablecoin companies like Paxos that are regulated by U.S regulators, such as the New York Department of Financial Services. Since Tether now has the same audit backing as the other stablecoin issuers like Circle, Paxos and Gemini, there is a level of trust in the USDT tokens in the cryptocurrency market.
It is also fair to say that many in the community still feel doubts remain, especially given the fact that the audit was completed by an offshore company in a tax haven.
Tether remains the leading stablecoin in the cryptocurrency space despite the numerous controversies of the past. It has a market cap of $61 billion at the time of this report and a daily trading volume of over $70 billion. If it were to transpire that they have mislead investors, it could have a devastating effect on the wider market.