Tether Admits to Not Being Fully Backed by US Dollar Reserves

Tether, a stablecoin with a market cap of over US$2.05 billion, admitted on Thursday (March 14) that its reserves are not 100 percent held in US dollars. As its slogan states that 1 Tether is backed by 1 US dollar, this could carry significant implications for the fiat currency founded on the assurance of being pegged to these reserves.

Without any official audit release since Tether’s beginning, the company continues to sidestep the release of any transparent financial details, Forbes reported on March 14. In fact, this marks the third time that the company has creatively released financialdata that it acknowledges is not from professional audits.

Take, for example, the language used in Tether’s most recent update on itswebsite, where it removes the statement that its reserves are 100-percent backed by currency reserves:

“Every tether is always 100 percent backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USDT is always valued by Tether at 1 USD.”

Tether’s previous statement read:

“Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD.”

In addition, Tether’s language has changed from a claim that its reserves are subject to professional audits, to a claim that they are subject to professional verifications.

As suspicions on the content of Tether’s balance sheet grew,Bloomberg reported in December that Tether had evidence showing that its reserves matched its coin distribution for the month of July 2018. Bloomberg reported that it had seen select bank statements that suggested cash reserves were present.

Earlier in 2018, the US Commodity Futures Trading Commissioninvestigated Tether’s cash reserve supply, issuing a subpoena for further information.

Unsurprisingly, analysts are cautious about Tether’s reserves. “They’re saying they can break that out into whatever they want. They could have a receivable on their book that owes them some money from another exchange and count that as an asset against their own Tether,” Kara Haas, a CPA cryptocurrency andblockchain expert said, according toMarketWatch.

In data reported byBlockspur, a blockchain data analysis firm, over 30 percent of Bitcoin transactions on exchanges are estimated to involve Tether. In 2017, when Bitcoin’s price surged to US$20,000, Tether’s market value grew from US$10 million at the beginning of the year to a valuation of US$1.3 billion at year end.

The management team at Tether does not appear to be listed onBloomberg, although Tether’s website lists JL Van Der Velde as its CEO. Velde is also the CEO of Bitfinex, a cryptocurrency exchange that shares other management and investors with Tether.

The two companies also share ahistory of losing banking relationships, such asWells Fargo and Tawianese lenders in 2017 and Puerto Rico’s Noble Bank in early 2018. Since October 2018, Tether’s current banking partner isDeltec Bank & Trust, which is based in the Bahamas.

According to a report byCoindesk on Tuesday (March 19), Bitcoin is close to falling under US$50 billion in market capitalization; it previously fell under US$50 billion in August 2018. The dominance rate of the cryptocurrency has edged near the 50-percent line of the total market capitalization, with altcoins gaining market share since 2017.

Since these revisions were made on the company’s website, the price of Tether has remained close to US$1, or even slightly more. Market capitalization since March 14 has ranged between US$2.019 billion and US$2.023 billion, according toCoinMarketCap.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.