As of Nov. 6, 2021, 71.85 billion USDT are in circulation, with a market cap of $71.91 billion.
While the company has been successful in its journey to become the leading stablecoin issuer, it has won a large base of detractors in the cryptocurrency market. Most of them do not trust Tether’s claims about USDT reserves, and they have the right to do so with Tether’s latest practices.
The Crypto Community Demands Transparency
The crypto community has demanded transparency from Stablecoins. Tether has claimed USDT is “fully backed” by reserves, yet they took a long time to disclose what reserves they were referring to. On May 13, they decided to publish a paper breaking down the asset categories that made up the USDT reserve, and only 3.87% of the USDT reserve is held in cash. The reserves were mainly made of commercial paper (65.39%), bank deposits (24.20%), and only cash amounted to 3.87%.
However, this didn’t exempt the company from regulatory scrutiny. Back on Oct. 15, Tether and its parent company Bitfinex were charged $42.5 million in fines by the U.S. Commodity and Futures Trading Commission (CFTC) over “misleading statements and omissions of material fact in connection with the U.S. dollar token USDT.” This led to numerous rumours within the crypto community. Some were calling the company a fraud that will likely fail in the future.
As if it wasn’t enough, Bloomberg released a post called Anyone Seen Tether’s Billions? The hit piece was a scathing attack that put Tether in the spotlight by saying, in short, that the stablecoin issuer is a fraud because it doesn’t have the reserves to back USDT in reality.
“Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud”, —reads the report.
Tether responded by calling the article, “A one-act play the industry has seen many times before, taking snippets of old news from various places and dubious sources, and making it fit a pre-packaged and pre-determined narrative.”
After all, we need to note that Tether has not been audited by any blockchain intelligence firm or analytics firm as such. The stablecoin issuer limited itself to launching several assurance opinions by a Cayman Island-based audit provider Moore Cayman.
In the report, the company claimed Tether has enough funds to base their claims by conducting an attestation based on the ISAE 3000 —International Standard on Assurance Engagements (revised), a standard for assurance over ethical research and guided information, issued by the IFA (International Federation of Accountants).
This, of course, was taken with a grain of salt by institutional investors and the crypto community. The concerns over Tether’s supposed transparency and its claims didn’t end. Rather they incremented as time passed.
Is Tether Really Committed to Transparency?
Trying to mollify the community’s concerns, Tether announced last week the integration of Notabene, an end-to-end solution that will help the firm to comply with AML (Anti-Money Laundering) and (Know Your Customer) laws and combat cross-border crime.
Notabene’s platform will help the stablecoin giant to tackle illegal transactions, as stated by the Crypto Travel Rule —a mandate that stipulates that all Virtual Assets Service Providers (VASPs), like retail crypto exchanges and stablecoin issuers, should comply with the same regulatory laws as traditional financial institutions. The mandate was established on June 20, 2021, by the Financial Action Task Force (FATF) —a global financial watchdog.
Despite Tether’s efforts to back its transparency claims, the company still has a lot to prove to the crypto community. One thing to explain is why Tether claimed it didn’t have anything to do with Chinese companies when it did.
Remembering the Bloomberg piece, Zeke Faux, author of the article, discovered that the firm holds debt with several Chinese companies, including Evergrande, a real estate giant that it’s on the verge of collapsing. While the future still has a lot of room for Tether to explain its practices and claims, it will most likely find ways to justify its shady practices.