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.
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 controversy

Stablecoins are, in essence, designed to have a fixed value that is pegged to a commodity or crypto. Tether is tied to the US dollar. This means that each issuance of Tether requires cash-back.

The company issued 48 billion Tethers in 2021. Each Tether is worth $1. Despite repeated assurances from the company, the picture remains hazy. Is the company able to provide the financial support necessary to address all of these problems? What happens if everyone decides to liquidate their investment in the same day? The firm does not have a clear and concise answer.

Tether reacted to this tired attempt to undermine credibility and authenticity of stablecoin by citing its quarterly audit reports and audits.

Tether’s coins are worth nearly $69 billion. This puts it in line with the valuations of some of the biggest banks in America and around the globe. Tether, unlike most banks that have investor protections in place in case of defaults (which are common with all banks), seems to lack them. According to reports, if Tether were to collapse, it would lead to a financial crisis that could reach almost $2.3 trillion.

According to the June 30th independent auditor report, “The group’s assets exceed its liabilities” and “The reserves of the group for its digital assets issued exceeds what is required to redeem digital asset tokens,” the last audit report for the stablecoin stated that the group’s consolidated assets exceeded its consolidated liabilities.

The website claims that $30 billion was invested in commercial paper. However, the backing for the claim is not there. Similar fate awaits the company’s claims that it is registered with British Virgin Island Financial Regulator. This denial denies the claim.

Bloomberg reported that only one Bahamas-based bank was confirmed to be working with Tether. The report claimed that the bank had made major investments in Chinese entities, and issued crypto-backed loans in excess of $2.5 million. Tether denied any investments in Evergrande, the Chinese real estate company that is currently in trouble, but it refused to confirm whether it had other investments.

Tether’s Bahamas-based bank has a paper trail that leads to a tiny investment of $15 billion in cash or low-risk bonds. However, this is less than 25% of its $69 billion cumulative reserve.

The US justice department launched an investigation earlier this year to determine whether Tether executives, including Giancarlo devasini, had concealed the true nature and financial details of certain transactions.

Together with iFinex which runs the crypto exchange Bitfinex the firm reached a $18.5 million settlement with New York Attorney General. The settlement covers claims that the firm never had reserves to back stablecoins and that it had manipulated funds in order to cover $850 billion worth of losses.