Tether is a stablecoin which is pegged on an even ratio to the dollar. This means that every Tether token (USDT) is to be matched with one US Dollar. But there have been a number of recent controversies leading many to question is Tether a scam or a legitimate stablecoin. There are actually too many controversies to go into in detail, but the most obvious are listed below.
Tether is not to be Trusted
According to research from the University of Texas, Tether has been used to manipulate the price of bitcoin and Tether is not to be trusted. The exchange Bitfinix were reported to buy the stablecoin and keep its price up. The study found that the more Tether entered the market, the higher the price of cryptocurrency. The report does not confirm price manipulation but indicates suspicious patterns and correlations.
There is a further concern that Tether can simply print more tokens the same way that the central government uses quantitative easing. The tokens are then converted into Bitcoin, driving up its price. A certified audit is the best way to deal with this. Tether claim that their reserve account is frequently audited. But this is untrue. In fact, they actually fired their auditor for doing a thorough job – “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.”
Tether Controversy and Conflicts of Interests
The law firm of Freeh, Sporkin and Sullivan, LLP (FSS) did conduct a report on the financial accounts of Tether. The report confirmed that on June 1st, USDT was backed by a similar number of USD in two bank accounts. The report was carried out by a law firm, not an accounting firm. Further, generally accepted accounting principles (GAAP) were not used. The firm further attests that the report does not constitute evidence of Tether compliance in any legal jurisdiction. It merely served to confirm that USDT was matched with the appropriate USD reserves on June 1st. The lead legal advisor to Tether has claimed that there are too many barriers to an official audit. But TrueUSD, an alternative stablecoin, does not seem to have these barriers.
Perhaps the real reason people question is Tether a scam or not lies in its web of corporate governance dealings. Eugene Sullivan, a senior partner at FSS, is an advisor to one of the banks where the USD was held in reserve. This raises serious red flags. While the page indicating that Sullivan is an advisor to Noble Bank International has been taken down, it is possible to view the cached version on June 19th.
Noble Bank International is a reserve bank, meaning it does not offer fractional banking and these banks do not typically offer loans. This raises questions as to how Tether is actually profitable and what its relationships are with Noble International and the other bank.
Additionally, there seem to be multiple conflicts of interests and corporate connections. Brock Pierce is the co-founder of Noble Markets, which controls Noble International. He is also one of the initial Tether founders, though he claims to have since sold his position. The web of inter-relations gets murkier and murkier the further one looks. Brock Pierce and John Betts had dealings with the Mount Gox scandal and Sunlot Holdings. John Betts is now the CEO of Noble Markets. Sunlot Holdings was previously advised by Louis Freeh, one of the FSS co-founders. None of this is criminal. Yet it raises questions with regard to the legitimacy of Tether.
Is Tether a Scam?
Is Tether a scam or a stablecoin of value? While there is no definite and conclusive evidence to prove that Tether is a scam, there is significant evidence to suggest that Tether certainly has a number of issues, has not been transparent and has not been fully audited. The claims do not add up, there are too many unanswered questions, and Tether is not to be trusted.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.