The idea behind Tether was simple.
Establish a utility token that would be able to represent fiat currency at a ratio of 1:1, while offering the advantages of blockchain technology for cross-border payments.
Tether was originally Realcoin, a project founded by Brock Pierce, Reeve Collins and Craig Sellars, before being rebranded in November of 2014.
Early on in its history things seemed to be going as planned, although Tether’s relationship with crypto exchange Bitfinex has always been a source of scrutiny from the wider cryptocurrency community.
Bitfinex and Tether
The Hong Kong-based exchange added Tether to its exchange in January 2015, but it was the shared leadership that raised red flags for some critics.
JL Van der Velde is CEO of both companies, while Giancarlo Devasini holds the position of the chief financial operator at both companies as well.
Tether’s Bank Reserves
Since it arrived on the scene in late 2014 Tether has always claimed that it has the required fiat reserves needed to back all tokens in circulation at any given time, and even provides a ledger on its website that shows Tether tokens accompanied by their underlying monetary reserve.
Problems began to appear when an audit of its accounts was promised in 2017 and not delivered, leading to pressure from the crypto community that eventually led to a short review of Tether’s accounts by Friedman LLP, which can be found here.
For many within the community, this just wasn’t enough. A full audit was promised, and after more pressure Tether eventually brought Friedman LLP back to conduct an audit in January of 2018.
Around a month into the process, Tether put a halt to the audit, claiming that
“the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether”
“clear that an audit would be unattainable in a reasonable timeframe.”
Bitcoin Price Manipulation
Following on from the scrapped audit, Bitmex released a report that claimed Tether had the required cash reserves in a bank account in Puerto Rico, but more trouble was to follow when the University of Texas issued a report claiming that Tether was responsible for Bitcoin price manipulation and quoted “incomplete tether backing.”
In the same month the University of Texas report was released, US law firm Freeh Sporkin & Sullivan LLP claimed that they had access to two of Tethers bank accounts which confirmed they did have the required reserve of fiat currency to back the tokens in circulation.
This, however, was not an official audit.
More Pressure on USDT Tether
Along with the report, Tether claimed that the mainstream accounting firms simply would not run an official audit of a cryptocurrency company and that this report was what they believed to be “the next best thing.”
Shortly after the FSS report was published the company itself released a statement highlighting that
“FSS is not an accounting firm, and did not perform the above review and confirmations using Generally Accepted Accounting Principles,”
and that the results
“should not be construed as the results of an audit.”
Fast Forward to today, enter TrueUSD
Now, we see Tether drop below $1, which has completely undermined its status as a stablecoin, and its relationship with Noble Bank in Puerto Rico is reportedly over.
The truth is, Tether is in trouble. There are other stablecoins which have been created by highly reputable providers with real potential to provide an alternative to Tether.
One such alternative is TrueUSD, who was represented by Ryan Rodenbaugh in this interview discussing Tether and the future of stablecoins along with European crypto exchange ETERBASE CEO Robert Auxt.
The pressure is now on Tether to step up and prove that transparency matters, and that their position as a stablecoin is backed up by facts.
Guest Post by Aubrey Hansen