Tether, the issuer of the largest stablecoin by market cap, USDT, is once again facing scrutiny over its financial practices. On September 12, the consumer advocacy group, Consumer’s Research, released a report criticizing Tether for its ongoing lack of transparency regarding its USD reserves, which are supposed to back USDT one-to-one.
Allegations Of Incomplete Audits
At the core of the report is a glaring issue—Tether’s failure to provide a full audit of its reserves by a reputable accounting firm. This isn’t a new concern. Consumer’s Research highlighted that Tether has repeatedly promised but never delivered a thorough audit of its dollar reserves.
Tether’s history of incomplete financial disclosures stretches back to 2017, when questions first arose about the company’s claims that each USDT token was backed by one U.S. dollar. In 2018, Tether attempted to quiet these concerns by providing a report from a law firm, rather than a certified accounting firm, which claimed USDT was fully backed by USD. This action led to further suspicion and eventually a probe by the U.S. Department of Justice.
Comparison to FTX Collapse
Consumer’s Research draws a parallel between Tether’s current situation and the downfall of FTX and its sister company, Alameda Research, which both collapsed in 2022 due to opaque financial dealings and questionable fund movements. The report warns that, much like FTX, Tether’s lack of transparency could pose a significant risk to the crypto market.
In 2019, the State of New York unearthed evidence that Tether had engaged in illegal money movements to cover an $850 million loss of customer funds. Following this, the court ordered Tether to cease operations in the state and levied a hefty $18.5 million fine on the company in 2021. Tether settled the charges, admitting to false claims about USDT’s backing but has yet to release an independent audit of its reserves.
Past and Present Regulatory Scrutiny
In 2022, Tether’s auditing law firm faced a lawsuit from the U.S. Securities and Exchange Commission (SEC) over accusations of improper accounting practices. The SEC’s lawsuit against the law firm raised further questions about the accuracy of Tether’s reserve claims. The latest report from Consumer’s Research only deepens these concerns, citing ongoing doubts about whether USDT is truly backed by USD.
More alarmingly, the report also alleges that Tether has been “doing business with bad actors” and has failed to prevent its stablecoin from being used in illicit international transactions. While details of these allegations were not fully disclosed, the advocacy group’s warning indicates potential regulatory headaches ahead for Tether.
Tether’s importance in the crypto ecosystem cannot be overstated—USDT is widely used for trading and liquidity purposes across exchanges. However, as Consumer’s Research points out, Tether’s unresolved transparency issues present a looming risk for the broader crypto market. Any collapse or financial instability similar to that of FTX could trigger widespread disruption.
Also Read: Tether Invests $100M In Agriculture – 9.8% Stake In Adecoagro & 31,300 New USDT Wallets In One Day
The report concludes by urging investors and regulators to push for greater scrutiny and oversight of Tether’s operations, warning that without a transparent and independent audit, Tether remains a ticking time bomb in the cryptocurrency space.
Tether’s ongoing failure to provide a full audit of its USD reserves has reignited concerns over its financial practices, raising red flags for both investors and regulators. With allegations of doing business with bad actors and past legal entanglements, the need for transparency has never been more pressing for Tether. Whether the stablecoin issuer will finally deliver on its audit promises remains to be seen, but the pressure is mounting.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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