Tether’s lack of third-party audits is raising concerns among investors about the possibility of an FTX-like liquidity crunch from the $118 billion stablecoin giant.
Investor concerns are growing around Tether, the issuer of the world's largest stablecoin, USDT (USDT).
The latest wave of concerns was sparked by Cyber Capital founder Justin Bons, who shared his concerns that Tether could be a bigger scam than FTX.
In a September 14 post on X, Bons emphasized:
“[Tether is] one of the biggest threats to the entire crypto market. We have to believe they hold $118 billion in collateral without evidence! Even after the CFTC fined Tether for lying about their reserves in 2021.”
In 2021, Tether was fined $41 million in civil penalties by the US Commodity Futures Trading Commission (CFTC) for lying about having adequate reserves of USDT.
Concerns about the stablecoin giant’s influence over the crypto space have grown louder in recent days, after data revealed that Tether’s market share has surpassed 75% of the entire stablecoin market, up 20% over the past two years.
Tether's Collapse Will Be Related to Banks, Unlike FTX
Part of these concerns were fueled by one of the industry’s most famous “black swan” events, the collapse of exchange FTX, which resulted in the loss of $8.9 billion in user assets.
While FTX's collapse was due to its inability to meet a $6 billion mass withdrawal within three days, Tether's likely collapse would involve its banking partners, according to Sean Lee, co-founder of IDA Finance.
Lee told TinTucBitcoin:
“Whether it’s a bear market or not, the likelihood of Tether collapsing depends more on its structural connection to underlying assets and the banking system than on market volatility. Otherwise, USDT would have struggled in the last bear market, but instead it was USDC that lost value due to its dependence on SVB and Signature Bank.”
In May 2022, Tether accommodated over $16.7 billion USDT withdrawals within 10 days without any issues.
In contrast, Washington Mutual Bank failed to meet $16.5 billion in withdrawals within 10 days, leading to the largest bank collapse in the United States in September 2008.
Some believe Tether is too big to fail. Notably, Anndy Lian, author and intergovernmental blockchain expert, doesn't expect Tether to have problems, but warns that in general, large centralized entities can pose risks to the crypto space:
“Cryptocurrencies were originally designed to operate without central control, promoting transparency, security, and user autonomy. However, Tether, as a centralized stablecoin issuer, holds significant influence over the crypto market due to its widespread use in trading and liquidity.”
TinTucBitcoin has reached out to Tether for comment.
Tether's Business Structure and Transparency Raise Concerns
On September 8, Tether invested $100 million in Adecoagro, acquiring a 9.8% stake in the Latin American agricultural giant.
The investment brought the first revelation of Tether's governance structure, according to Cyber Capital's Bons, who wrote:
“The Tether Holdings board of directors has only 2 members; Giancarlo and Ludovico. This implies that the USDT reserves will not be segregated in 2024 and these two have absolute control!”
IDA Finance co-founder Lee is also concerned about Tether's lack of transparency. He wrote:
“Tether is structured as a business and their persistence in not providing the level of transparency needed to ensure genuine trust from the community and institutional investors is troubling.”
Although Tether boasts of holding over $118 billion in reserves in its second-quarter “independent certification” conducted by BDO, Cyber Capital’s Bons asserts that Tether has yet to submit their reserves to a third-party audit:
“An auditor's report or accountant's report is not an official audit! Despite claims, Tether has never submitted its reserves to an independent, unrestricted, 3rd party audit!”
