New allegations — new problems: will Tether survive them?

Consumer advocacy group Consumers’ Research has published a report accusing Tether, the issuer of the USDT stablecoin, of being opaque and failing to conduct a full audit of its dollar reserves.

Teather accused of lack of transparency (again)

Analysts at Consumers’ Research said the USDT issuer has yet to conduct an audit of its reserves, despite promising to do so since 2017. Additionally, the stablecoin was given a stability rating of “4 out of 5” in the S&P Global rating, with “5” being the worst.

The report includes a letter to the governors of every U.S. state detailing Tether’s opaque activities. In addition to the open letter, Consumers’ Research has launched a dedicated resource detailing its claims.

For example, the organization accuses Tether of repeatedly promising to thoroughly audit its reserves. Despite promises, the project has never provided a full report from a respected accounting 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 FTX’s demise.

“As you can read in the attached consumer warning, Tether has many of the same problems as FTX and Celsius before their collapse – potentially costing consumers billions of dollars through misleading marketing tactics that are not true.”

Finally, the company is accused of 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 phase 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.

Incognito dollar for sanctioned countries

Earlier, journalists from the Wall Street Journal (WSJ) said that USDT has become an “incognito dollar” for countries like Venezuela and Russia, guaranteeing the free movement of capital abroad.

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

Moreover, stablecoin issuer Tether made $6.2 billion in profits during the same period, which is more than the world’s largest ETF provider, BlackRock. The WSJ highlighted that the company managed to achieve such figures with a workforce of 100 people.

WSJ pointed to Venezuela and Russia, noting that USDT is widely used in these countries to circumvent sanctions. In the former, state-owned Petroleos de Venezuela uses a stablecoin to pay for oil supplies.

“Russian oligarchs and arms dealers transport Tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil company accepts payment in Tether for shipments. Drug cartels, fraud networks, and terrorist groups like Hamas use it to launder revenue.”

The authors of the article also pointed out 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 offers international USDT payments worth around $50 million per month. According to him, this is due to the pressure the United States is putting on the global banking system.

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

Claims Against Tether Are Rising

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

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

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

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

There is another equally resonant case in the history of the issuer, which ended relatively recently: a lawsuit against Tether and Bitfinex. The scandal broke in 2019. Representatives of Tether and the Bitfinex crypto exchange initially concealed 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 concealed. This led to many suspicions of a conflict of interest.

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 revealed details of the illegal operations. The companies were later forced to admit their connection.

The case raised questions about how well Tether is supported. Tether and Bitfinex later settled the case, paying a $18.5 million fine. 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 inception. The history of the USDT issuer has indeed had some dark pages. However, judging by their 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 unfounded. Many of them could be resolved by an independent audit.

The claims against Tether have changed little over the years. Despite the pressure, the project continues to live and develop. Tether may skip subsequent investigations with negative conclusions, the validity of which may in turn be questioned.