Tether Hit With Scathing Report Over USDT Reserve Transparency

Key Takeaways

• Tether’s USDT reserves are back in question as consumer watchdog calls lack of audit a red flag.
• American watchdog said lack of transparency over USDT reserves put consumers at risk.
• The watchdog urged Tether to carry out an independent audit.

The American consumer watchdog Consumer Warning has slammed Tether for not being transparent about its USDT reserves. 

The stablecoin issuer has maintained that USDT is pegged against the US dollar, redeemable at 1:1. This means anyone selling one USDT will receive a US dollar against it. However, the continuous postponement of audits has raised concerns about its operation for years.

The allegation against the stablecoin issuer comes just days after Tether posted $6.2 billion in revenue for 2023. The revenue even surpassed the multi-trillion asset manager BlackRock.

Consumer Warning Says Tether’s Refusal to Audit a Red Flag

The American watchdog raised concerns over Tether’s lack of independent audits despite the firm’s promises since 2017. The stablecoin issuer has promised to conduct an independent audit for seven years. However, the company has postponed it each time.

In its report, Consumer Warning pointed out that the CEO last promised a full audit in August 2022, claiming it is “likely months away.” 

“Two years later, it still has not happened. Tether continually waves a bold red flag with its refusal to be independently audited or to audit itself properly.” the report read.

Also, the report claimed that the lack of transparency of USDT reserves, with Tether’s market cap of $125 billion, could prove fatal for the crypto industry, similar to FTX.

Another FTX in the Making?

Consumer Warning’s Tether report drew parallels between the stablecoin issuers’ business model and the bankrupt crypto exchange FTX.

The watchdog pointed towards the FTX lawsuit involving Tether, which alleged that Alameda Research and Tether used to artificially inflate market demand by billions in USDT purchases against crypto tokens. Alameda allegedly sold the USDT at a higher price in the market, allowing Tether to receive US dollars for the USDT it sold. 

The suit alleged:

“Alameda would create USDT in amounts and, at times, that would inflate the market price of the stablecoin. Alameda would promptly sell the USDT in the market at several basis points above the purchase price. Tether, in turn, would receive US dollars for stablecoins it minted from nothing.”

Furthermore, the consumer watchdog raised concerns over Tether’s $6.5 billion loan. According to publicly available data, “secured loans” on Tether were about $6.57 billion in Q2 of 2024, up from $4.7 billion in Q1 of 2024. The report also noted that the stablecoin issuer has failed to deliver on its promise of bringing loans to zero on multiple occasions.

The report alleged that based on its “checkered history of allegations from law enforcement and its persistent refusal to release an audit, Tether has a very concerning risk profile for a stablecoin.” The firm urged the stablecoin to carry an independent audit from a reputable firm, like a crypto exchange such as Coinbase, and said, “An outside audit would go a long way in easing concerns.”