The controversial stablecoin Tether has again become a hot topic among investors and accountants as there were some recent changes made regarding the way it backs up token in supply. On 14th March, many people reported that they have noticed some changes on the Tether website which restated the way company provides surety for the token it issues.
In a recent couple of years, we have noticed many frauds which were very closely held and in most of the cases, the related parties controlled the ownership. And in all such cases, even an effective internal control is not meaningful if you don’t address your fundamental accounting first and that’s why you accountant’s should be well aware of the alteration in tether’s term of reserve.
In this blog post, we will be discussing the recent changes on the website of Tether, know a little bit about what this stablecoin actually is and understand the reason behind people asking for more transparent rules and regulations regarding this stable coin.
What is Tether?
In the world of cryptocurrency, Tether it one of the oldest and most widely traded stablecoin. The reason behind the birth of Tether was the need for a stable cryptocurrency which can be used digital dollars. In layman’s language, it is just a cryptocurrency with tokens issued by Tether limited, and it is also claimed to be backed up by US dollar but you should also know that it is not necessary that they will always be redeemed by Tether limited.
The trading abbreviation of Tether is USDT and it belongs to that particular group of cryptocurrencies with which you can transfer amounts in real time. There are many blockchain platforms that support Tether stablecoin like Kraken and Bitfinex. The Tether is the most traded cryptocurrency because of its stability and the secret of stability lies in its feature of acting as an alternative to the US dollar. It is backed up by the US dollar in 1:1 ratio which means every company which $1 for every USDT in circulation.
Regarding the recent chang
The exact date of change isn’t known to anyone but the following is the screenshot of the recent change made on the website marked in the rectangular box
The adjustment was made regarding the way company ensures a reserve for circulation tokens through a new 100% backed statement which lifted the claim of every Tether stablecoin being backed up by fiat currency as the 100% backed statement stated that
“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”
Everybody knows that traditional currencies and cash equivalent could be fiat and other products that are liquid. Even if we go through the most updated guideline of cryptocurrency which states that all the cryptocurrencies are intangible assets, there is no doubt in taking it as cash equivalent as well.
Questionable assurance regarding the reserve
The proof of financial account of the company came in the form of a document from law firm Freeh, Sporkin & Sullivan LLP which confirmed Tether’s currency reserve in 2018. The real question arises due to the various claws in that document which makes the assurance incorporeal.
The first thing to consider here is that the confirmation came from a law firm, not an accounting firm and the confirmation wasn’t made by using accepted accounting principles. Along with that, it is clearly mentioned in the document that the confirmation shouldn’t be interpreted as the result of an official audit.
In addition to the above suspicion, the findings in the document are only valid till June, 2018 which means that company hasn’t provided any third party assurance of reserve for dealing in currency for more than nine months.
During all this controversy, the currency struggled a lot to maintain its stablecoin states which makes it equivalent to $ 1 but you should know that this is not the first cryptocurrency which struggled to maintain its stablecoin status as DAI stablecoin also dipped below $1 mark on various exchanges.
The real problem with Tether
According to most of the people, the recent change regarding the assurance of the stablecoin reserve with its new 100% backed statement was made around 26th February, 2019 which means that such a big change went unnoticed two weeks until it was first posted on Twitter. Such a delay raises the question of whether any user is concerned to redeem or not. If the users are not redeeming then it leads us to a different question regarding the market participants using USDT.
So, even if you or your closed ones dealing in cryptocurrency never going to use the Tether, it is highly risky to avoid thinking about its effect on your accounting.
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