24th September 2022 > > Tether (USDT)

tl;dr

The day of reckoning for Tether is approaching.

Market Snap

Market Wrap

XRP (Ripple) is the standout performer in the crypto space, rallying around 50% since the news that both Ripple Labs and the SEC have requested a summary judgement (see CCC 19th September 2022). The market believes the SEC is in the wrong. Let us hope the market is right.

Curious Cryptos’ Commentary – Tether (USDT)

Despite being one of the earliest, and one of the biggest, stablecoins, USDT has come in for some well-deserved criticism from the CCC in the past.

The reasons for that criticism are simple. For a long time, the organisation behind USDT employed an offshore accounting firm to “audit” their assets and liabilities, and despite their constant claims for transparency, there has never been a satisfactory explanation of the assets behind USDT.

What we do know is that some of the collateral – at least in the past – comprised loans made to crypto currency entities, introducing correlation risk where it is least welcome.

Stablecoins have become an important aspect of the crypto landscape and can be a force for good or bad.

We saw with the Terra fiasco that the collapse of an algorithmic stablecoin led to several knock-on effects, disruption to markets, bankruptcies, and – eventually – jail time for the likes of Do Kwon who oversaw the destruction of $45 billion of wealth.

Given the inherent limitations of algorithmic stablecoins, it is especially important that stablecoins ostensibly backed by assets that guarantee a 1:1 peg to the US Dollar do own those assets.

And we are about to find out.

…

U.S. Judge Katherine Polk Failla of the Southern District of New York has ordered Tether to provide detailed information about the assets behind USDT, and documents showing transactions:

“Plaintiffs plainly explain why they need this information: to assess the backing of USDT with US

dollars, and to allow a forensic accountant to assess the USDT reserve. And although the Court understands the [Defendants’] position to be that Plaintiffs’ theory is shifting with regard to ‘other assets’ and other funds, at this stage in the litigation and without compromise by the parties, the Court takes as true Plaintiffs’ representation that this information is necessary to assess its claims regarding USDT backing.”

For a company that claims it is all about transparency, that should all have been done a long time ago.

…

The complainant not only claims that USDT is not backed by real-world assets, but that Tether also committed crimes such as money-laundering and operating an unlicensed money-transmitting business.

Damages sought are a rather aggressive and unlikely $1.4 TRILLION.

Tether is opposing the order, further cementing its reputation as a firm that does not yet wish to disclose if it has been swimming naked before the tide goes out.

This order for disclosure can only be a good thing, though it does risk significant market disruption if we find out that USDT is another stablecoin built on nothing by hubris and shouting.