Stablecoin Tether leaves investors unstable with 'fraud' whiff in $69-billion reserve

The stablecoin universe is so far dominated by two main tokens, Tether and USD Coin. Tether is already more than 60 percent of the total stablecoins currently issued, worth about $100 billion. [Image: Shutterstock]

Stablecoin Tether went under intensifying regulatory and public wrath following reports that no independent entity could validate the $69-billion reserves backing the coin.

According to Coinmarketcap, Tether's trading volume fell almost 14 percent in the last 24 hours. 

“Exactly how Tether is backed, or if it’s truly backed at all, has always been a mystery. For years, a persistent group of critics has argued that, despite the company’s assurances, Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud,” a Bloomberg report said.   

The controversyEssentially, stablecoins, just like their name, are designed to have a stable value, pegged to a commodity, crypto, or fiat currency. Tether is pegged to the US dollar. It means the coin requires complete cash-backing for each of its issuances.

In 2021, the company has issued 48 billion Tethers, valued at $1 each. Despite persistent assurance reports from the company, the picture remained hazy. Does the company have the adequate financial backing to support all these issues? What happens if all individuals decide to liquidate their investment the same day? The firm has no clear, pointed answer. 

Hitting back at this “tired” attempt to undermine the credibility and authenticity of the stablecoin and citing its quarterly assurance reports and audits, Tether claimed that its USDT tokens are fully backed by the dollar. 

With almost $69 billion worth of coins in circulation, Tether has valuations matching some of the largest banks in the US and the world. But, like most banks, which have investor safeguards in place for a potential case of defaults, Tether seems to have none. Reports suggest that if Tether collapsed, it would entail a global financial meltdown of almost $2.3 trillion. 

“The group’s consolidated assets exceed its consolidated liabilities and the group’s reserves held for its digital assets issued exceeds the amount required to redeem the digital asset tokens issues,” said the last independent auditor report filed for the stablecoin on June 30.

While the website mentions a $30-billion investment in commercial paper, there is no backing to the same. A similar fate meets the company’s claims of being registered with the British Virgin Island Financial Regulator, which denies the same.

The Bloomberg report mentioned the confirmation of just one Bahamas-based bank working in partnership with Tether, alleging that the firm had major investments in Chinese entities and issued crypto-backed loans worth millions of dollars. While Tether denied having any investments in the now-crumbling Chinese real estate giant Evergrande, it would not confirm whether or not it holds investments in other Chinese firms. 

 A minuscule paper trail leading to Tether’s Bahamas-based bank reveals an investment of $15 billion in cash and low-risk bonds, but this accounts for less than 25 percent of the group’s cumulative reserve of $69 billion. 

Earlier this year,  the US justice department initiated an investigation to find out whether Tether executives, including CEO Giancarlo Devasini, concealed the true nature of transactions and whether its banking partners had been made aware of the cryptocurrency tie-up of some transactions.

The firm, along with iFinex, which operates the crypto exchange Bitfinex, recently reached an $18.5 million settlement with the office of the New York Attorney General on claims that the company always did not have reserves to back these stablecoins and that the company had manipulated funds to cover $850 billion of losses it faced.