New charges — new problems: Will Tether survive them?

Consumer advocacy group Consumers’ Research has released a report accusing Tether, the issuer of the USDT stablecoin, of being opaque and not conducting a full audit of its dollar reserves.

Table of Contents

• Teather is accused of being non-transparent (again)
• Incognito dollar for sanctioned countries
• Claims against Tether are gaining momentum
• Is Tether really that bad?

Teather is accused of being non-transparent (again)

Consumers’ Research analysts said that the USDT issuer has yet to conduct an audit of its reserves, although it has promised to do so since 2017. In addition, the stablecoin received a “4 out of 5” stability rating in the S&P Global rating, where “5” is the worst.

The report includes a letter to the governors of all U.S. states, which reports on Tether’s opaque activities. In addition to the open letter, Consumers’ Research has launched a special resource with a detailed description of its claims.

Thus, the organization accuses Tether of repeatedly promising to audit its reserves thoroughly. Despite promises, the project has never provided a full report from a respected auditing firm. They also saw similarities with the situation of FTX and Alameda Research. Tether’s lack of transparency is reminiscent of the circumstances that led to the collapse of FTX.

“As you will see outlined in the attached Consumer Warning, Tether has many of the same issues that FTX and Celsius had before their collapse – potentially costing consumers billions of dollars using deceptive and misleading marketing tactics that are inconsistent with the truth.”

Finally, the company is blamed for doing business with unscrupulous partners. Analysts also believe that the company failed to prevent USDT from being used to circumvent international sanctions and other illegal activities.

At the same time, the first stage of Consumers’ Research against Tether was launched in June. The company accused the issuer of the USDT stablecoin of having ties to Russian and Chinese authorities, terrorist organizations, and drug cartels.

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Incognito dollar for sanctioned countries

Earlier, Wall Street Journal (WSJ) journalists said that USDT has become an “incognito dollar” for countries such as Venezuela and Russia, ensuring the free transit of capital abroad.

The article’s authors referred to the fact that USDT threatens the financial system and national security of the United States since it remains unregulated. The WSJ claims that the asset’s trading volume for 2023 exceeded the same indicator for the Visa payment system.

In addition, stablecoin issuer Tether’s profit for the same period amounted to $6.2 billion, which is more than the world’s largest ETF provider, BlackRock. The WSJ emphasized that the company managed to achieve such figures with a staff of 100 people.

WSJ singled out Venezuela and Russia, noting that USDT is widely used in these countries to circumvent sanctions. In the first case, the state-owned company Petroleos de Venezuela is using a stablecoin to pay for oil supplies.

“Russian oligarchs and weapons dealers shuttle Tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil firm takes payment in tether for cargoes. Drug cartels, fraud rings and terrorist groups such as Hamas use it to launder income.”

The article’s authors also pointed to the rapid scaling of USDT within the global market. In particular, Tether’s efforts to promote itself in Georgia were highlighted here.

Journalists quote Eralp Hatipoglu, CEO of the company’s local partner, the CityPay.io service, as saying that the organization provides international payments in USDT worth about $50 million monthly. According to him, this is due to the pressure exerted by the United States on the global banking system.

Hatipoglu also stated that the service carefully checked transaction participants but did not provide evidence.

Claims against Tether are gaining momentum

Earlier in August, bankrupt Celsius Network accused Tether of misappropriating assets and violating the terms of the agreement.

The court documents indicate that in 2020, Celsius Network entered into an agreement with Tether. Under the agreement, the company received borrowed funds in USDT stablecoins. In response, the platform sent Tether 39,542 Bitocin (BTC) as collateral.

Celsius Network representatives claim that Tether hastily liquidated a large number of bitcoins in 2022, violating the terms of the contract and leading to the company’s bankruptcy.

Tether CEO Paolo Ardoino responded that Celsius Network decided not to provide additional collateral and instructed Tether to liquidate bitcoins to close the position.

There is another equally resonant case in the issuer’s history, which ended relatively recently—a lawsuit against Tether and Bitfinex. The scandal erupted back in 2019. Representatives of Tether and the Bitfinex crypto exchange initially hid the close relationship between the companies. For a long time, the parties did not advertise that both organizations belong to the same parent structure — iFinex Inc. The presence of common managers was also hidden. This led to many suspicions of a conflict of interest.

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It was later revealed that Bitfinex used Tether’s reserves to cover its losses. There were also allegations of market manipulation. The New York State Attorney General’s Office uncovered details of the illegal operations. The companies were later forced to admit their connection.

This case raised doubts about how well Tether is backed. Tether and Bitfinex later settled the case, paying a fine of $18.5 million. The companies also agreed to provide regular reports on their reserves.

Is Tether really that bad?

Tether Limited Inc. has been facing fraud allegations almost since its founding. The USDT issuer’s history really does have some dark pages. However, judging by their actions, the company’s representatives are ready to take responsibility for mistakes and fight for the project’s development.

The claims of Consumers’ Research and The Wall Street Journal are not unfounded. Many of them could be resolved by an independent audit.

The claims against Tether have hardly changed over the years. Despite the pressure, the project continues to live and develop. Tether may be able to step over the subsequent investigations with negative conclusions, the validity of which, in turn, can also be challenged.

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