Tether's lack of third-party audits is raising investor concerns about a potential liquidity crisis similar to FTX.
Investor Concerns
Cyber Capital founder Justin Bons expressed concerns about Tether potentially being a bigger scam than FTX. In a Sept. 14 post, he wrote: "[Tether is] one of the biggest existential threats to crypto as a whole. As we have to trust they hold $118B in collateral without proof! Even after the CFTC fined Tether for lying about their reserves in 2021." Back in 2021, Tether was fined a $41 million civil monetary penalty by the US Commodities and Futures Trading Commission (CFTC) for lying about USDT being fully backed by reserves. Concerns over the stablecoin giant’s influence over the crypto space grew louder in recent days after data revealed that Tether’s market share surpassed 75% of the entire stablecoin market, following a 20% increase over the past two years.
Hypothetical Tether Collapse
Part of the concerns are fueled by one of the industry’s most notorious black swan events, the collapse of the FTX exchange, which caused $8.9 billion of lost user funds. According to IDA Finance co-founder Sean Lee, a hypothetical Tether implosion would be related to its banking partners: "Bear market or not, the possibility of Tether imploding is more about its structural connectivity to its underlying assets and banking rails." In May 2022, Tether honored over $16.7 billion worth of USDT customer withdrawals within 10 days without any issues. In contrast, Washington Mutual Bank was unable to honor $16.5 billion worth of withdrawals within 10 days, which led to the biggest banking failure in the US in Sept. 2008. Some experts, such as author and blockchain expert Anndy Lian, believe Tether is too big to fail but acknowledge the significant influence Tether has on the crypto space.
Tether’s Business Structure and Transparency
On Sept. 8, Tether invested $100 million in Adecoagro, acquiring a 9.8% stake in the Latin American agricultural giant. This latest investment gave insight into Tether’s governance structure, with Justin Bons stating: "The board of Tether Holdings only has 2 members; Giancarlo & Ludovicos. This implies that the USDT reserves are still not segregated in 2024 & these two have absolute control!" IDA Finance’s co-founder Lee also expressed concern about Tether’s lack of transparency: "Tether is structured as a business, and their insistence on not providing the level of detailed transparency that ensures real trust from the community and institutional players is indeed concerning." Despite Tether boasting over $118 billion worth of reserves in its second quarter, Justin Bons claims that Tether has yet to submit its reserves for a third-party audit: "An 'Auditor's Report' or an 'Accountant Report' is not a formal audit at all! Despite the claims, Tether has never submitted its alleged reserves to a real unrestricted, third-party audit!"
The growing concerns of investors regarding Tether and its governance structure highlight the importance of transparency and trust in the crypto space.
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