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 non-transparent and failing to fully audit its dollar reserves.

Teather allegedly lacks transparency (again)

Consumers’ Research analysts said the USDT issuer has yet to conduct an audit of its reserves, despite promising to do so since 2017. Additionally, the stablecoin received a “4 out of 5” stability rating on the S&P Global rating, where “5” is the worst.

The report includes a letter to governors of all U.S. states that reported on Tether’s opaque activities. In addition to the open letter, Consumers’ Research has launched a dedicated resource with a detailed explanation of the allegations.

As such, the organization accuses Tether of failing to promise to conduct a thorough audit of its reserves. Despite promises, the project has never provided a full report from a reputable auditing firm. They also see similarities to the situation with FTX and Alameda Research. Tether’s lack of transparency is reminiscent of the circumstances that led to FTX’s collapse.

“As you will see in the attached Consumer Alert, Tether is experiencing many of the same issues that FTX and Celsius experienced before their collapses, potentially costing consumers billions of dollars through deceptive and misleading marketing tactics that do not match reality.”

Finally, the company has been accused of doing business with rogue partners, and 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 phase of Consumer 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.

Secret dollars for sanctioned countries

Previously, Wall Street Journal (WSJ) journalists stated that USDT had become a “secret dollar” for countries such as Venezuela and Russia, allowing capital to flow freely abroad.

The authors of the article referred to the fact that USDT poses a threat to the financial system and national security of the United States due to its unregulated nature. The WSJ claims that the volume of transactions of the asset in 2023 exceeds the same indicator for the Visa payment system.

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

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

“Russian oligarchs and arms dealers are moving Tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil company is paid for cargo in Tether. Drug cartels, fraud networks, and terrorist groups like Hamas are using Tether to launder money.”

The authors of the article also noted the rapid scaling of USDT in 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, CityPay.io, as saying that the organization provides international payments in USDT worth about $50 million per month. According to him, this is due to the pressure exerted by the United States on the global banking system.

Hatipoğlu also noted that the service carefully checked the transaction participants but did not provide evidence.

Claims against Tether are gaining momentum

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

Court documents show that Celsius Network struck a deal with Tether in 2020. Under the deal, the company borrowed money in USDT stablecoins, and in return, the platform sent 39,542 Bitcoin (BTC) to Tether as collateral.

Celsius Network representatives claim that Tether hastily liquidated a large number of Bitcoins in 2022 in violation of the terms of the contract, which led to the company’s bankruptcy.

Tether CEO Paolo Ardoino said 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 company’s history, which ended relatively recently: a lawsuit against Tether and Bitfinex. The scandal broke out in 2019. Representatives of the cryptocurrency exchange Tether and Bitfinex initially concealed the close relationship between the companies. For a long time, the parties did not announce that both organizations belong to the same parent company – iFinex Inc. The presence of joint managers was also concealed. This gave rise to many suspicions of a conflict of interest.

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

The case raised questions about how well-backed Tether was. Tether and Bitfinex later settled the case by paying $18.5 million in fines. The companies also agreed to provide regular reports on their reserves.

Is Tether really that bad?

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

The claims by Consumers’ Research and The Wall Street Journal are not without merit. Many of them could be resolved with an independent audit.

The allegations against Tether have barely changed over the years. Despite the pressure, the project continues to live and thrive. Tether may pass subsequent investigations with negative results, and the validity of those results may also be questioned.