Tether, the issuer of the largest stablecoin, USDT, faces mounting scrutiny due to its lack of third-party audits and alleged financial opacity. As concerns spread about a potential collapse akin to the FTX debacle, Cyber Capital founder Justin Bons has been vocal about Tether’s operations, calling it a $118 billion “scam” that could destabilize the entire crypto ecosystem.
Despite Tether’s dominance, its opaque business practices, including the lack of a formal audit of its reserves, have raised alarms in the crypto community.
Growing Concerns Over Tether’s Transparency: Is This The Next FTX?
Justin Bons, a crypto analyst and founder of Cyber Capital, recently ignited fresh fears about Tether’s opaque financial operations. In a detailed 17-part thread on X (formerly Twitter), Bons alleged that Tether could be a larger fraud than the now-collapsed FTX exchange.
According to Bons, Tether’s claim of holding $118 billion in collateral lacks any verifiable proof, and the company has yet to undergo a legitimate third-party audit since its inception in 2014.
Bons pointed out that although Tether released an “auditor’s report” with BDO in 2021, this is not the same as a full audit.
“An ‘Auditor’s Report’ or an ‘Accountant Report’ is not a formal audit at all.”
Bons added that Tether had promised a comprehensive audit all the way back in 2015 but failed to deliver.
According to Bons, the absence of transparency makes Tether one of the most significant risks to the entire crypto market, potentially bigger than the infamous collapses of FTX and Bernie Madoff’s Ponzi scheme combined.
Tether’s influence over the market is vast. After a 20% increase in the past two years, it holds 75% of the entire stablecoin market.
Bons argued that this outsized dominance, coupled with the firm’s questionable financial reporting, can potentially disrupt the crypto space, much like the FTX collapse that led to $8.9 billion in user losses.
Questions About Governance: Can Tether Survive an FTX-Like Collapse?
In 2021, the U.S. Commodity Futures Trading Commission (CFTC) fined Tether $41 million for lying about its reserves. The regulatory body found that Tether had falsely claimed reserves fully backed its USDT at all times.
However, the stablecoin issuer has since refused to undergo a comprehensive audit.
Bons also raised concerns about Tether’s governance structure following its recent $102 million investment in Latin American agricultural giant Adecoagro.
This investment revealed that Tether Holdings is controlled by only two board members.
This sparks fears that the reserves backing USDT are neither transparent nor segregated. This level of centralization raises red flags, especially in an industry that values decentralization and transparency.
Bons highlighted that several Tether founders have ties to Bitfinex, a crypto exchange previously linked to money laundering and organized crime through its banking partner, Crypto Capital.
These connections add to the perception that Tether may not be as financially secure as it claims.
While concerns over Tether’s operations continue to grow, some industry experts believe Tether may be too big to fail.
Experts like Sean Lee, co-founder of IDA Finance, said in a statement that, during the 2022 bear market, USDC (another stablecoin) de-pegged due to its reliance on troubled banks like Silicon Valley Bank and Signature Bank, while Tether remained stable.
Nevertheless, questions remain about Tether’s long-term viability. Anndy Lian, an intergovernmental blockchain expert, also warned that Tether’s unchecked control over a substantial portion of the market is at odds with the decentralized principles upon which cryptocurrencies were founded.
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