- Tether’s crypto dominance has sparked fears of a collapse bigger than FTX.
- Critics have questioned Tether’s opaque reserves backing its $119B USDT supply.
- Analysts have warned that a liquidity crisis will loom without proper third-party audits.
Tether, the behemoth behind the USDT stablecoin, is once again under the microscope as concerns mount over its transparency and stability. With a staggering 75% share of the stablecoin market and a $119 billion market cap, Tether’s dominance in crypto is undeniable.
So are the growing warnings from analysts who see trouble brewing beneath the surface. Justin Bons, founder of Cyber Capital, is one of the loudest voices raising the alarm. In a scathing post on X (formerly Twitter), Bons claimed the company could pose an even bigger threat to crypto than FTX.
Tether’s Unproven Reserves
Bons has called Tether “one of the biggest existential threats” to the crypto industry. His concern? The company’s lack of proof that it holds $118 billion in collateral to back its USDT supply—despite being fined $41 million by the CFTC in 2021 for misleading claims about its reserves.
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Since then, the company has grown more powerful, fueling fresh concerns. Its market supply has surged by 20%, cementing its grip on the crypto market. Critics fear that without proper third-party audits, Tether could face a liquidity crisis similar to FTX’s implosion if its banking partners falter.
Sean Lee, co-founder of IDA Finance, has commented to Cointelegraph that FTX crumbled when it couldn’t meet $6 billion in withdrawals in just three days. Lee warns that if the company stumbles, it would likely be tied to its banking relationships.
Is Tether Too Big to Fail?
Yet, Tether has shown resilience. During the crypto winter of May 2022, it processed a jaw-dropping $16.7 billion in customer redemptions in just ten days, proving it could handle large withdrawals—far outperforming Washington Mutual’s failure in the 2008 financial crisis, which collapsed after failing to meet $16.5 billion in withdrawals over the same period.
Not everyone is convinced that Tether is on the brink. Blockchain expert Anndy Lian argues that while its centralized structure could pose risks, a full-blown collapse is unlikely. Still, Lian warns that the company’s massive influence raises red flags, especially in a space built on decentralization and transparency.
As scrutiny grows, Tether is taking steps to strengthen its financial position. This month, it made a $100 million investment, acquiring a 9.8% stake in Latin American agricultural giant Adecoagro, likely to diversify its holdings. Whether these moves will ease concerns about the company’s future remains to be seen.
On the Flipside
- Regular attestations from accounting firm BDO provide transparency into Tether’s reserves, countering claims of financial opacity.
- In October 2022, Tether eliminated its commercial paper holdings, replacing them with U.S. Treasury bills to enhance the quality and liquidity of its reserves.
- Despite multiple market downturns, Tether has consistently maintained its 1:1 peg to the U.S. dollar, demonstrating resilience and effective risk management.
Why This Matters
The scrutiny over Tether’s transparency is important because it highlights the need for trust in stablecoins that underpin much of the crypto market. While concerns about its reserves persist, Tether’s proven ability to handle massive withdrawals offers reassurance, emphasizing the importance of ongoing transparency to maintain market stability.
To learn more about the controversy surrounding Tether’s reserves and audits, read here:
Tether Faces Allegations of Being a “Bigger Scam Than FTX”
Curious how Tether is working to combat crypto crime? This article details a new partnership to fight illicit use of USDT:
Tether Taps TRON and TRM Labs to Fight Illicit Use of USDT
