Tether is solvent. That is, at least according to a law firm that Tether invited to do a report on them. The report states that currently, Tether has USD reserves on hand that are “unencumbered” and equal to just over $2.5 billion. The fiat-representative coin released by Tether, USDT, has been under near constant scrutiny by the crypto public. It has been suspected of fraudulently creating more USDT coins than their reserves could justify.
What is Tether and USDT?
Before we get into this latest news, let’s quickly review what Tether and USDT are. If you’re already familiar, go ahead and skip to the next section.
One major problem (or advantage, depending on what you’re trying to do) with cryptocurrencies is that they have a lot of price volatility. This means that their prices are pretty much never stable. A second problem for cryptocurrency investors is that almost all altcoin valuation is tied to Bitcoin. This can make locking in trade gains very difficult.
One solution would be to use what’s known as a stable coin, of which there are a few choices today. Tether has created a cryptocurrency called the US Dollar Token, or USDT. The idea is that each one would be backed by a reserve of US dollars held by the company.
With this in mind, active traders can use USDT as a safe haven of sorts from cryptocurrency volatility, while not needing them to completely cash out into fiat.
For more detailed analysis of USDT, check out our article on the subject here.
Law Firm Conducts a Review
The report released by Tether and dated as having been completed on June 1 of this year includes statements that would suggest that the law firm, FSS, is fully confident that “Tethers unencumbered assets exceed the balance of fully-backed USD tethers in circulation as of June 1st, 2018”.
While this may seem to some as a relief, others are not quite so sure and feel that this report actually proves the opposite.
One user on Reddit who claims to be a certified public accountant and a former auditor for one of the top four firms in the world expressed a few concerns in a comment responding to the announcement.
According to the individual using the name sniper24usa, it seemed highly irregular for a law firm to be tasked with this job. To this, they wrote:
“Strange to me that a legal firm is performing an accounting firm’s role. An entity this large can easily afford a Big 4 accounting firm to perform these procedures. Or even a mid-sized firm, which would provide investors greater confidence over the report. While cash confirm procedures aren’t very difficult, would you rather have a plumber or an electrician wire your house?”
While this Reddit user has not supplied any proof of their former employment, their point does appear to have some validity regardless. And it certainly begs the question, why didn’t Tether use a proper auditing firm and instead use a law firm to do this?
Sniper24usa closed their comment by saying:
“This report gives me no additional or decreased confidence in Tether. The questions it raises as to their lack of an entire audit, along with choice of firm, leave me with little evidence and don’t do much for me.”
Attack of Bitfinex’ed
Infamous Twitter user Bitfinex’ed has been dishing out a near endless stream of reports about alleged wrongdoings and dealings between the exchange Bitfinex and Tether since last year. The anonymous Twitter user claims to have inside information on to the wrongdoings of these two companies and asserts that Tether is involved in what they describe as “fraud and/or money laundering”.
In response to the report released by Tether, Bitfinex’ed shared a few screenshots which could be poignant.
The biggest threat to cryptocurrency is the communities absolute trust in corrupted centralized third parties that violate their own agreements.
I called it months ago, they will never do an audit. You can't audit fraud and/or money laundering. pic.twitter.com/rDibxFxFuG
— Bitfinex'ed ???????? Κασσάνδρα ???? (@Bitfinexed) June 21, 2018
The first is a quote from an article from Coindesk in which Tether general counsel Stu Hoegner said in January, “The bottom line is that an audit cannot be obtained”. He then continued, “the barriers to getting audited are simply too big to overcome right now, and not just for us”.
The anonymous whistle-blower then includes a line from the Tether white paper which reads, “Professional auditors will regularly verify, sign, and publish our underlying bank balance and financial transfer statement.”
Finally, they included a screenshot from the law firm report itself which reads “FSS is not an accounting firm and did not perform the above review and confirmations using Generally Accepted Accounting Principles.” And “The above confirmation of bank and tether balances should not be construed as the results of an audit and were not conducted in accordance with Generally Excepted Auditing Standards.”
Fog of Tether
So what is the truth in this story? Will we ever know whether or not Tether is actually telling the truth, or will the conspiracy theories never end? At this point in time, and according to Hoegner, the answer is no.
For whatever reason, the company claims that they cannot be audited, despite the fact that their white paper apparently says otherwise. With this in mind, it is best that those that want to use USDT understand the potential risks involved.