Tether, the issuer of the largest stablecoin USDT, continues to raise doubts about the transparency of its reserves: is it a case similar to what happened with the exchange FTX?
With a growing influence in the cryptocurrency market, the lack of third-party audits raises concerns about potential investment risks. Let’s see all the details below.
Stablecoin and the influence of Tether: risks and investment opportunities, what does the FTX exchange have to do with it?
Tether, with over 118 billion dollars in declared reserves, has a market share of more than 75% in the stablecoin sector. This dominance places the company at the center of the cryptocurrency world, and its influence is continuously growing.
However, despite its importance, many investors express concerns about its transparency and corporate management.
The absence of formal audits and third-party verifications on reserves has fueled fears of a potential liquidity crisis similar to the one that hit FTX.
In 2021, the Commodities and Futures Trading Commission (CFTC) fined Tether with a penalty of 41 million dollars for misleading statements regarding the backing of its reserves.
Despite this penalty, Tether continues to not offer adequate guarantees to investors that its reserves are truly sufficient to cover the value of the stablecoin in circulation.
The Cyber Capital analyst, Justin Bons, stated that Tether represents one of the biggest threats to the world of cryptocurrencies. In a recent post, Bons emphasized that Tether could be a scam of even greater proportions compared to FTX.
Which has disrupted the market with its implosion. Bons added that the lack of evidence on Tether’s reserves fuels the risk of a future liquidity crisis.
Potential risks for investors in Tether
The main concern of investors regarding Tether is related to the lack of a true independent review of its reserves.
The attestations provided by Tether are carried out by BDO, but according to many industry experts, these reports cannot be considered a formal audit.
A real audit, in fact, would require a detailed examination of the reserves by an independent company, which has not been conducted so far.
The absence of transparency raises concerns that Tether might face difficulties in responding to massive withdrawal requests from users.
A similar scenario has already occurred with FTX, where the failure was triggered by the lack of liquidity in coping with mass withdrawals.
However, according to Sean Lee, co-founder of IDA Finance, the hypothetical implosion of Tether would be caused primarily by its banking partners and the underlying reserve structures, rather than by a simple market movement.
Despite concerns, Tether has demonstrated a certain resilience over time. In May 2022, for example, the company managed to meet over 16.7 billion dollars in withdrawal requests without a hitch.
This event has strengthened the confidence of some investors, who see Tether as an entity too big to fail. However, the absence of adequate audits continues to generate skepticism about this view.
The corporate structure of Tether: lack of transparency
One of the most concerning aspects of Tether involves its corporate structure. Recently, Tether made an investment of 100 million dollars in Adecoagro, acquiring a 9.8% stake in the Latin American agricultural company.
This investment has revealed new details about the governance of Tether, showing that the company’s board of directors consists of only two members, Giancarlo and Ludovicos.
According to Bons, this implies that the reserves of USDT are not segregated, and these two individuals have absolute control over the company.
This centralization of power, combined with the lack of transparency, raises serious concerns about the management of reserves and Tether’s ability to keep its promise of backing every USDT issued with real reserves.
Sean Lee highlighted that this lack of clarity makes Tether vulnerable, emphasizing how investor confidence is put at risk.
Therefore, although Tether has demonstrated a certain resilience over time, concerns regarding its transparency and the management of reserves remain strong.
The lack of an independent third-party audit represents a significant risk for investors. They could find themselves exposed to a liquidity crisis in the event of massive withdrawal requests.
For investors, caution is a must. Maintaining a long-term vision and closely monitoring the development of Tether’s transparency policies will be essential to assess the risks and investment opportunities in this stablecoin giant.
