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Crypto Cries Foul In Wake of Tether's Dollar Token Report

Too good to be true?

That’s what some are wondering after Tether, the makers of the dollar-pegged crypto asset, USDT, made an announcement Wednesday insisting that its tokens – valued at $2.6 billion – are fully-backed by real cash (according to one law firm, at least).

For months, Tether has fought accusations that it is falsely issuing tokens without actually having the dollar reserves to back them. The company had even initially partnered with an audit firm to undergo a full inspection. That working relationship, however, was dissolved back in early January.

Some background on Tether: Unlike bitcoin or ethereum, which does not have traditional assets affirming its value, USDT can boast a relatively secure store of value being pegged to the dollar. As such, investors view tether as less of an investment and more of a tool to move funds from one cryptocurrency exchange to another.

Sounds ingenious, right?

The problem is that if allegations over tether not having the funds to back their tokens are indeed true, there’s less money than is currently being depicted in the cryptocurrency markets and in fact more reason to believe cryptocurrency prices are inflated.

So, bringing this story back around to the latest announcement, the general consensus is that no, the claim still can’t be proven.

As explained by @Bitfinexed, a well-known critic of the company, the issue with the review is that it isn’t really an audit.

This is important to note because audits are generally held to a greater degree of accountability and integrity than legal reviews, which is what many are saying needs to be done for claims of tether’s reliability to be even remotely affirmed.

Nonetheless, amidst the chatter, there are still those who see this legal review as one more reason to keep on using Tether’s token.

Still, there are those who see even this announcement as one that is ill-intended, labeling it just another way USDT is boosting (or manipulating) the price of cryptocurrencies in general.

Warning: proceed with caution

The concern over price manipulation is especially timely given a study published this week alleging that tether was an active instrument used by investors to boost the price of bitcoin in times of market downturns.

Not to mention that tether is a cryptocurrency closely linked to cryptocurrency exchange Bitfinex, which, like tether, has a history riddled with hacks, lost funds and a resistance to greater transparency.

The worry over the increased impact of tether and, by consequence, Bitfinex, has caused outcry on social media by notable voices such as the creator of litecoin Charlie Lee, and professor at NYU Stern School of Business, Nouriel Roubini.

Tether seems well aware of the concerns voiced on social media and recent reports.

The company wrote in a blog post on their official webpage that their efforts in “transparency” are far from over and that they will continue with “steps aimed at opening up Tether to the general public and clearing away any uncertainty that may exist.”

Tether image via Shutterstock

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Tether Confirms Its Relationship With Auditor Has 'Dissolved'

Tether, the issuer of the dollar-pegged cryptocurrency USDT, said its relationship with audit firm Friedman LLP has ended.

The statement, provided Saturday evening by a company spokesperson to CoinDesk, confirms the suspicions of online sleuths and is likely to raise new questions about the company’s finances.

Friedman had been working on an audit of Tether, which has close ties to the cryptocurrency exchange Bitfinex. Critics of the two companies, most prominently the blogger who goes by the handle Bitfinex’d, have claimed that Tether had been printing tokens out of thin air to drive up the price of bitcoin on the exchange.

It is not clear from the spokesperson’s emailed statement who broke up with whom. The statement reads:

“We confirm that the relationship with Friedman is dissolved.  Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”

The company remains “committed to the process,” the spokesperson added.

Eagle-eyed cryptocurrency enthusiasts on Twitter had raised doubts about the status of the relationship last week, noting that Friedman had dropped Bitfinex’s name from the list of clients on the audit firm’s website. Friedman did not return calls and emails from CoinDesk over the course of the week.

In a preliminary report released in September, Friedman said Tether had $442.9 million of cash on reserve, matching the outstanding issuance of USDT – but that assessment was not a full audit and contained numerous caveats.

Image via Shutterstock.

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