TL;DR — Tether is not the future of crypto. Prepare for a long goodbye.
Tether recently announced an ‘audit’, in which a law firm with access to its accounts confirmed that the company has all the money it needs to back USDT 1:1.
No doubt Tether hoped this would end speculation that it has been running a fractional reserve, artificially inflating crypto prices with fake money, and instil renewed respect and greater confidence in USDT. Sadly for Tether, this was not the case.
Tether parted ways with their original Auditor almost six months ago, bringing speculation to boiling point that either the company didn’t have the money to back their token, or that the means by which they had acquired those funds was murky enough for an audit to reveal serious problems. This time, law firm Freeh, Sporkin & Sullivan prepared the report.
FSS are not an accounting firm. Apparently, it was too difficult to get an audit because of the unclear rules around this emerging industry. ‘We’ve gone for the next best thing,’ claimed Tether’s legal counsel.
The audit won’t satisfy many people in crypto, Inferno included. There are still too many question marks over the company. This is evidence that they have the funds to back USDT — around $2.5 billion right now — but we’re almost certain there are skeletons in the closet about how they got those dollars.
There are other problems. We have no idea what Tether’s liabilities are. It doesn’t matter if a company has $2.5 billion in assets if they have $2.6 billion in liabilities — or, in Tether’s case, $10 million. (That would still mean the token wasn’t fully backed.) And a law firm has a very different role from an auditor. Law firms act for the client, whilst auditors have to remain independent because their judgements have impacts on third parties, not least those who hold and use USDT in this instance.
Two other newsworthy items. Phil Potter, Bitfinex’s Chief Strategy Officer, is leaving his job with the exchange. His public reasoning was as follows. ‘As Bitfinex pivots away from the U.S., I felt that, as a U.S. person, it was time for me to rethink my position as a member of the executive team. It’s been an incredible journey over these past four years, and while I wish my colleagues success and good fortune in their ongoing endeavors, I am also looking forward to new opportunities for myself in the days ahead.’
Maybe. We won’t say that this is a rat leaving a sinking ship, because Tether isn’t sinking. But ‘pivoting away from the U.S.’ is code: they cannot operate in the U.S. because the U.S. views their activity as utterly illegal. A more apt analogy would be a rat leaving a ship that has been more and more associated with piracy over the last year, and that other ships don’t want to go near.
The second piece of news is that Tether just created another $250 million in USDT, one of few large print runs this year. Apparently it’s business as normal.
What comes out of all this is that the picture for Tether and Bitfinex is far less clear than was believed a few months ago. These companies, so critical to the crypto landscape, cannot shake their toxic image. And they are part of the Old Guard: the crypto companies that grew up and grew big in the era before regulation, when crypto was still the Wild West. Tether may be a $2.5 billion behemoth, but it’s an old one that’s built on rotten foundations. With the professionalisation of the sector and enforced regulatory frameworks, it’s destined to lose market share against legitimate newcomers like TrueUSD — those who do the same thing as Tether, only better and with assured compliance (https://www.trusttoken.com/trueusd/).
The bottom line: Tether is on borrowed time. In a regulated crypto world, it cannot maintain its supremacy. Its importance will dwindle. Likely anyone who worked there and companies that rely on them will be viewed as radioactive. It won’t happen overnight, but Tether is on its way out.
Read the full report at https://www.coindesk.com/tether-review-claims-crypto-asset-fully-backed-theres-catch/
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