Tether tries to be more transparent, but will it make things worse?

Tether may only have $25 in its bank account, and the rest is Bitcoin.

Tether claims its tokens are backed by over $35 billion in reserves, but is that really the case?

Contents

1. Yesterday, Tether released proof of its reserve audit, trying to show that its stablecoin USDT has sufficient US dollar support;

2. However, things are more complicated than they seem.

On March 31, stablecoin issuer Tether released a certificate of USDT reserves, claiming that they have sufficient US dollar reserves to "back" each stablecoin - this is the first time Tether has issued such a certificate since the issuance of USDT, but even so, it failed to completely reassure skeptics.

The document, which includes Tether’s own reports and a statement from Moore Cayman, a small accounting firm in the Cayman Islands, shows that as of February 28, 2021, Tether had approximately $35.3 billion in assets and $35.2 billion in liabilities “related to its issued digital tokens,” that is, Tether’s assets that back the USDT stablecoin in circulation.

Compared with its past avoidance of regulation, Tether’s move is indeed an important step towards transparency, while also showing a soft attitude towards regulators. Recently, the New York Attorney General’s Office announced the end of its review of Tether and fined it $18.5 million according to the settlement agreement.

There is no doubt that Tether’s release of the transparency audit document was intentional, but after the release, can it really achieve the desired effect? ​​Let’s take a look at it together with Planet (ID: o-daily).

The audit report was released on February 28th - what was done earlier?

According to the transparency audit report released this time, Tether's assets on February 28, 2021 were $35.3 billion, and the total value of Tether stablecoins circulating in the crypto market on that day was $35 billion. But what about before February 28?

As part of the investigation into Tether, the New York Attorney General’s Office previously believed that Tether was “misleading” in terms of “transparency updates” on its reserves. This transparency audit report only disclosed a bank statement, but it did not explain how the money was deposited into the bank account and when it was deposited into the bank account. It is possible that it was deposited into the bank account on the morning of the audit. According to the information disclosed by the New York Attorney General’s Office, at least before February 28, they did not know how much money Tether had.

Since Tether did not specify the time of the deposit in the transparency audit report, no one knows what happened. It can be said that this audit is not "complete" and cannot give a more comprehensive understanding of Tether's holdings or examine its long-term funding activities (as of this writing, Tether has not responded to this matter).

So, what does Tether mean by “assets”?

In their report, audit firm Moore Cayman wrote:

“Tether’s consolidated total assets on February 28 were at least $35,276,327,156, and the amount of reserves held by the group for its issued digital assets exceeded the amount of funds required to redeem those issued digital assets.”

This raises an important question: If part of this $35 billion is “digital assets,” how are these assets valued? As we all know, the value of cryptocurrencies is extremely volatile, and a market decline would certainly affect the value of digital assets held by Tether.

Rohan Grey, a law professor at Willamette University, pointed out: "It is not clear what assets Tether holds. They have not explained whether these assets are deposited in a licensed bank or whether these are U.S. Treasury bonds. Are these so-called assets held by Tether liquid by traditional liquidity standards? So when Tether says it holds assets, it must be clear what these assets are, because they are likely different from cash or other liquid safe assets in our common sense. For example, Tether may only have $25 in its bank account, and the rest is Bitcoin."

Will audit reports be released in the future?

According to the settlement agreement reached with the New York Attorney General's Office, Tether intends to submit a disclosure report every quarter, which must clarify more information about the reserve, including details of cash and cash equivalents (such as loans, securities, etc.), and also clarify the percentage of each asset class. It is not clear whether this will take the form of a certificate or some other form of update, or whether a third-party auditor or law firm will write the report.

It is important to note that the settlement agreement only states that these disclosures must match the information provided to the New York Attorney General’s Office during the investigation. Since February, Tether has issued $6 billion in new stablecoins. Will they include the reserve information related to it in the next audit report? Let’s wait and see.