Tether have received a great deal of scrutiny for their flagship USDT product across the last 6-8 months, with many speculators expressing their belief that the company didn’t hold equivalent U.S. dollar reserves to match all of the Tether tokens in circulation. As is all too often the case within the cryptocurrency community, disinformation leads to a huge amount of speculation which suggested that the issuance of Tether was somehow directly responsible for the run-up in cryptocurrency prices to all-time highs.
In spite of this ongoing speculation, Tether appear to be focussed on trying to ensure clear transparency in their offering, which tends to be a useful addition to the growing cryptocurrency market that traditional banks and custodians are still hard-pressed to serve effectively. There have been many demands that Tether simply complete a full audit to give investors reassurance in their product, however, this is no simple task for a unique and innovative operation like Tether, that operates in the nascent cryptocurrency markets.
There are no set rules for handling audits of such operations and the risk-averse large accounting firms don’t appear to be too keen to engage with companies handling cryptocurrencies at this stage. In 2017, the company had an ongoing engagement with Friedman LLP, which culminated in a memorandum which confirmed Tether’s bank balances at the time matched the current Tether tokens in circulation. Some commentators were concerned that this was not a full audit, but as stated to Coindesk at the time by a Tether spokesperson, this was deemed not to be feasible:
“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”
Despite parting ways with Friedman LLP last year, the company appear to have taken a series of steps to ensure their users can continue to have faith in them and their USDT token. The latest step in this process appears to be an engagement with Freeh, Sporkin & Sullivan LLP; a law firm co-founded by former FBI director Louis Freeh. According to the report, a key element of this process was “a randomised inspection of the numbers of Tethers in circulation and the corresponding currency reserves”.
To put it more simply, FSS had the opportunity to randomly check Tether bank account balances, before then asking company executives how much Tether was in circulation and comparing the two figures to ensure all Tethers are backed by U.S. dollars in the bank. Their findings have now been published, with the following section of the report outlining the funds held with Tether’s two banks:
FSS selected the date of June 1st, 2018, and received the following balance information from Tether’s two banks as of the close of the banking day. FSS received the following confirmations from the respective banks by sworn and notarized statements provided by duly authorised personnel.
BANK 1: $1,968,538,584.82 USD (unencumbered)
BANK 2: $ 576,528,652.00 USD (unencumbered)
TOTAL: $2,545,067,236.82 USD
In conjunction with receiving the above balance information, FSS requested the Chief Financial Officer and the General Counsel of Tether to certify, by sworn statement, the amount of fully-backed USD Tethers that were in circulation as of the close of business on June 1st, 2018. The amount certified to FSS was $2,538,090,823.52 USD Tethers. According to Tether’s transparency page, the amount of fully-backed USD Tethers in circulation as of June 1st, 2018 was equal to $2,538,090,823.52 USD Tethers. FSS did not provide the Tether personnel with any advance notice, nor did FSS provide Tether the account balance information gathered from the two banks prior to receiving the Tether balance information.
This appears to be pretty conclusive in confirming that the Tether tokens in circulation are indeed backed by full U.S. dollar reserves, whilst not going so far as a complete audit which isn’t yet possible due to the novel nature of Tether as a company in the cryptocurrency space. This is further evidence that Tether are indeed a legitimate operation, as the company have now engaged with two respected firms to validate their balances at multiple points in time.
The research team at Bitcoin derivatives exchange Bitmex, also took time to investigate the Tether situation by looking at available information to try and connect the dots on Tether’s possible banking arrangements. Through looking at publicly available data on bank cash balances in Puerto Rico, Bitmex research suggested that Noble Bank could be working with Tether. Banking relationships are tough to come by in the world of cryptocurrencies, which could go some way towards explaining why Tether have kept this information private themselves. If the Bitmex line is correct, then this means a large proportion of Tether U.S. dollar reserves are safely stored via Noble in the custody of BNY Mellon (supposedly the largest custodian bank in the world).
In a media world dominated by a seemingly endless battle for clicks and traffic, it is somewhat inevitable that narratives emerge which scrutinise and challenge successful operations such as Tether. The company and it’s token experienced massive growth and now handle billions of dollars, which has arguably lead to a resurgence in new alternative stablecoin projects. The Tether hack last year in November was dealt with extremely fast and effectively (the company was forced to freeze nearly $31million of stolen Tether) and Tether have captured a huge amount of additional value since then. It is clearly an operation which is run with a high degree of professionalism and is particularly useful within the nascent cryptocurrency market. Hopefully, this latest transparency report can begin to put the unwarranted rumours to bed once and for all.