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Bank Statements Suggest Tether Properly Funded?

For the past year, there has been a perennial fear that stablecoin Tether doesn’t have the requisite U.S. dollar funds on account to back each Tether token in circulation.  However, bank statements seen by Bloomberg seem to indicate that they do have the required funding in place.

In a report published earlier today, documents reviewed did not provide a complete account of Tether financing.  Notwithstanding that, they do offer more evidence than ever before that supports the theory that Tether is and has been properly funded. It’s also understood that some of these bank statements have been shared with regulators.

A series of statements spanning four months were reviewed. In one instance, a particular bank statement shows $2.2 billion on account with Noble Bank in Puerto Rico on January 31.  Up until recently, Noble acted as Tether’s bankers.  According to data available on coinmarketcap.com, there were 2.195 billion Tether tokens in existence at that time.  With each token pegged to the U.S. dollar, that confirms sufficient FIAT backing – at least on that day.

The response on social media has been mixed.  Some feel that the ongoing fears expressed regarding Tether and Bitfinex have been ill-conceived with a view towards spreading fear uncertainty and doubt over the efficacy of the entire crypto space.  Others are more guarded and insist that full audits are necessary.

The implications of the failure of a cryptocurrency such as Tether are enormous for the industry.  At the time of writing, Tether is the 6th largest cryptocurrency in terms of market capitalization.  It has a market cap of $1.88 billion today, whilst trading at $1.01.  In the event of failure, the fallout for the industry as a whole would be devastating.  The stablecoin is utilized in 30% of all Bitcoin transactions that occur on cryptocurrency exchanges.

We have seen countless examples of banks worldwide depriving cryptocurrency exchanges of banking facilities.  In recent weeks, we have reported on such cases in Chile, Brazil and the United States.  These examples only scratch the surface.  As a consequence, many of these exchanges that cannot secure or maintain banking facilities depend on Tether as a mechanism to carry out business.

Tether dissolved their relationship with auditing firm Friedman LLC at the end of last year.  Since then, the speculation with regard to funding has been persistent.  In June, the company’s lawyers produced a report which claimed that the company was fully funded.  However, the information supplied did little to confirm proof of funds definitively over the course of the duration.

Funding is just one aspect of the overall Tether controversy.  The company – along with sister company Bitfinex – have also been linked to market manipulation. This has resulted more recently in an investigation which is being carried out by the U.S. Department of Justice.

There has also been speculation surrounding Bitfinex/Tether with regard to money laundering.  Those remain unproven allegations but could it explain away Tether’s reluctance to provide full audits?

Fears were heightened in October when it was found that the companies lacked banking facilities. Bitfinex withdrew the ability to deposit funds briefly at that time whilst Tether token values deviated considerably from their fixed peg value with the U.S. dollar for a couple of days.

Cryptocurrency emerged with a principal of assuming trustlessness.  It seems counter-intuitive that the community would be happy with assuming Tether can be trusted.  Some would say it’s downright dangerous and that the only way to run a legitimate stablecoin project is by way of fully recognized and regular auditing.

Perhaps its a sign of the immaturity of the market that some in the community feel that this can be left to chance.  The history of banking and financial services chronicles no end of examples of spectacular failures of banks and financial institutions.   There is too much at stake and therefore, proper checks and balances have to be in place.  In the absence of any other applicable regulation, that should mean complete and ongoing audits on a regular basis at a minimum.  To consider anything less is irresponsible.