There is growing unease among investors regarding Tether, the issuer of the world’s largest stablecoin, USDT. Justin Bons, the founder and CIO of Cyber Capital, has recently voiced his apprehensions on X, suggesting that Tether could pose an even bigger threat than the infamous FTX collapse.
Tether: The Biggest Threat to Cryptocurrency?
In a post made on September 14, Bons stated, “Tether is one of the biggest existential threats to crypto as a whole. We have to trust they hold $118 billion in collateral without proof! Even after the CFTC fined Tether for lying about their reserves in 2021.” This statement brings to light the serious concerns about Tether’s financial transparency and credibility.
In 2021, the United States Commodity Futures Trading Commission (CFTC) imposed a $41 million fine on Tether for misrepresenting the status of its reserves. According to Bons, this fine was part of a settlement that concluded an investigation into an alleged loss of $850 million in mixed client and corporate funds.
Concerns Over Tether’s Potential Collapse
The influence of Tether in the cryptocurrency market has been a topic of increasing concern, especially after data indicated that Tether’s market share has climbed to over 75% of the entire stablecoin market. This dominance has grown by 20% over the last two years.
One of the primary fears stems from the unforeseen collapse of the FTX exchange, which resulted in an $8.9 billion loss of user funds. FTX’s downfall was triggered by its inability to process $6 billion in withdrawals within three days. In contrast, a hypothetical collapse of Tether would likely involve its banking partners, as pointed out by Sean Lee, the co-founder of IDA Finance.
Conversely, some experts argue that Tether is too significant to fail. Anndy Lian, an author and intergovernmental blockchain expert, believes that while Tether might not face immediate issues, the existence of large centralized entities poses an inherent risk to the cryptocurrency ecosystem.
Increasing Concerns Over Tether’s Transparency
Another point of contention is Tether’s transparency. Bons highlighted Tether’s investment in Adecoagro, which offered a glimpse into its governance structure. The board of Tether Holdings comprises only two members: Giancarlo and Ludovicos. This raises concerns about the segregation of USDT reserves and the concentration of control within such a small group.
Sean Lee from IDA Finance also expressed his worries about Tether’s opaque operations. He stated, “Tether is structured as a business, and their refusal to provide the level of detailed transparency that ensures real trust from the community and institutional players is indeed concerning.”
Despite Tether’s claims of holding over $118 billion in reserves, as verified by BDO in their second-quarter attestations, Bons argues that Tether has yet to undergo a comprehensive third-party audit of its reserves.
The Unaudited Reserves of USDT
Bons has repeatedly stressed that Tether has never conducted a formal audit of USDT, despite promising to do so since 2015. “This means we have to take their word for the vast majority of reserves, as they cannot be independently verified,” he pointed out. He also mentioned that the first firm that attempted an audit was dismissed for being too meticulous in 2018.
He further explained that an ‘Auditor’s Report’ or an ‘Accountant Report’ is not equivalent to a formal audit. Despite Tether’s assertions, its alleged reserves have never been subjected to an unrestricted, third-party audit. Bons claimed, “This all only scratches the surface of the Tether story. It is an iceberg of corruption, conspiracy, and crime, with its tendrils reaching everywhere.”
The Urgent Need for Enhanced Scrutiny and Transparency
The uncertainty and lack of transparency surrounding Tether underscore the urgent need for enhanced scrutiny and transparency within the cryptocurrency space. This situation calls for immediate action to ensure that the interests of investors and the integrity of the crypto market are adequately protected.
Stay Tuned for More Updates
As the debate over Tether’s legitimacy continues, it remains crucial for investors and stakeholders to stay informed. Keep an eye out for further updates on this evolving story.
