Tether (USDT) Might Really Be Backing its Billions
A report by Bloomberg is shedding light on Tether’s finances and suggests that Tether may be fully-backed by US dollars in a bank account. The financial news publication was able to gain access to documents that appear to show that Tether has sufficient fiat currency to underwrite its dollar-backed cryptocurrency.
Is Tether Tethered to the Dollar?
The cryptocurrency industry has had its fair share of scams, fraudulent business practices, and questionable individuals. As a result, the cryptocurrency community has grown increasingly skeptical of anything that cannot be cryptographically varied.
Somewhat unsurprisingly, therefore, the community started to question whether, tether (USDT), the largest stablecoin in the cryptoasset market, is backed by the amount of US dollars it claims or whether the entire project has been fooling investors for years.
Because tether is one of the largest cryptocurrencies by market capitalization and is used in about 30 percent of bitcoin trades, it would be detrimental to the entire crypto market and level of legitimacy it has been able to reach in the past two years.
Fears about tether potentially being a nothing but hot air peaked in early 2018 when Bitfinex and Tether Ltd. were issued subpoenas by the U.S. Commodity Futures Trading Commission (CFTC) to determine whether the tether was backed by the stated amount of fiat currency or not. Given that Tether Ltd. never provided unquestionable proof that its coin is backed by the dollar, crypto investors have grown somewhat wary of this widely-used stablecoin.
Fortunately, for tether users and the crypto markets as a whole, it seems that Tether Ltd. does have the amount of money it states it does to back its dollar-pegged stablecoin. Bloomberg makes this claim in a new report after having received several bank statements from the company as part of their investigation into Tether’s financials.
Tether’s Banking Troubles
Tether Ltd has been facing a significant amount of trouble in its search to find and maintain the right banking partners. These troubles have only served to fuel the suspicions regarding the veracity of the claims that the company has the funds to back every unit of the USDT in existence.
Many cryptocurrency-based businesses have trouble accessing the services offered by traditional banking institutions and Tether is no different. However, for a digital currency whose entire premise is to be fully backed by the U.S. dollar, the lack of access to banks is especially worrying.
Tether’s trouble with banks began in 2017 when it was reported that Wells Fargo was blocking the completion of money transfers originating from the company as well as Bitfinex. Wells Fargo was allegedly preventing wire transfers from some Taiwanese banks relative to accounts containing their customer funds.
Since then, Tether has had to build new banking relationships but, until recently, the company was not willing to disclose those.
As part of Bloomberg’s investigation into Tether’s finances, the media outlet was able to get its hands on company bank statements from two of the banks that Tether has been using to hold its dollar. The two banks are Puerto Rico’s Noble Bank and Bahamas-based Deltec Bank Bank & Trust.
Tether opened a bank account with Noble in September 2017, where it expanded its balance from zero on September 1 to $392 million on September 30, according to Bloomberg.
In the same month, Tether also had $60.9 million in client money at Bank of Montreal in an account under the name of Stuart Hoegner, the general counsel for Tether and Bitfinex, according to an unredacted report by accounting firm Friedman LLP that Bloomberg received. This amounts to a total of $452.9 million in cash held by the company at a time when there were 435 million USDT on September 30, 2017.
The latest statement, from July 2018, shows a beginning balance of $1.9 billion on July 1 and an ending amount of $210 million on July 30. The account balance dropped as the company shifted funds to Deltec Bank in the Bahamas, according to people familiar with the matter, Bloomberg reported.
In a rare public display, Tether announced on November 1 that it held $1.8 billion in Deltec Bank. The Noble bank statement shows a considerable withdrawal of cash in July totaling $1.37 billion from July 12 to July 20 and Deltec’s chairman, Jean Chalopin, confirmed to CoinDesk that the bank’s relationship with Tether was real.
Moreover, the bank statements show that transactions between Bitfinex and Tether on July 6, July 20, and July 24 where USDT were exchanged for USD took place by how the coin has been set up. In other words, for each USDT that Bitfinex bought from Tether, it transferred one dollar to its bank account, which suggests that Tether’s USDT to USD transactions with Bitfinex are legitimate.
While Bloomberg’s report will put many investors’ concerns about tether to rest, the question remains why the company does not hire a third party to audit its account and make the audit’s results publicly-available? While most companies understandably prefer not to have outside auditors “snooping” around in their books, Tether would be able to lay all doubts to rest if it were to conduct one. Until then, investors will have to believe Tether and Bloomberg when it comes to the authenticity of this high-profile cryptocurrency operation.