Consumers’ Research, a prominent consumer protection group, raised serious concerns over the stablecoin issuer Tether regarding its transparency and reserve backing of USDT. The group published a report on September 12, accusing Tether of failing to provide a full audit of its U.S. dollar reserves, which allegedly backed the stablecoin on a 1:1 basis.
Lack of Independent Audit
Tether, the issuer behind the world’s largest stablecoin USDT, has long claimed that its tokens are fully backed by reserves, predominantly in U.S. dollars. However, according to Consumers’ Research, Tether has yet to provide an independent audit from a reputable accounting firm to verify these claims. The organization points out that the company has only released “attestations,” which are less thorough than full audits.
Questionable Practices and Comparisons to FTX
The report compares Tether’s situation to the now-defunct FTX and Alameda Research, both of which collapsed due to poor financial controls and lack of transparency. Consumers’ Research believes that similar risks exist with Tether, especially given its alleged involvement with questionable entities and its use of USDT to circumvent international sanctions. In its open letter to state governors, the group calls on policymakers to take immediate action to protect consumers from potential financial harm.
SEC and JPMorgan’s Concerns
The Wall Street Journal recently reported that Tether operates in a parallel economy outside U.S. law enforcement oversight. The report highlighted the potential dangers of such an unregulated ecosystem, noting that Tether’s operations could undermine efforts to combat illicit activities such as arms trading and sanctions evasion. Additionally, last February, JPMorgan Chase raised concerns about Tether’s compliance with regulations, citing the company’s lack of transparency as a potential threat to the overall stability of the crypto market.
Tether has taken steps to improve its transparency. In January, Howard Lutnick, CEO of Cantor Fitzgerald, a firm managing Tether’s U.S. securities portfolio, assured that Tether had sufficient reserves. Moreover, Tether hired Philip Gradwell, a former economist at Chainalysis, to produce reports on USDT usage. Additionally, Tether has been active in combating illicit activity involving its stablecoin and recently announced a partnership with Tron to establish the 'T3 Financial Crime Unit' aimed at tracking and freezing illicit USDT transactions.
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