Investor concerns are mounting around Tether, the issuer of the world's largest stablecoin USD₮. The lack of third-party audits raises fears of a potential liquidity crisis resembling the FTX collapse. Analysts and industry leaders weigh in on the issue.

Concerns Sparked by Cyber Capital's Founder

Cyber Capital founder Justin Bons catalyzed the latest wave of concerns. In a Sept. 14 X post, Bons wrote, "[Tether is] one of the biggest existential threats to crypto as a whole.

We have to trust that they hold $118B in collateral without proof! Even after the CFTC fined Tether for lying about their reserves in 2021."

In 2021, the United States Commodities and Futures Trading Commission (CFTC) fined Tether a $41 million civil monetary penalty for misrepresenting USDT's reserves.

Market Influence and Potential Implosion

Concerns over the stablecoin giant's influence over the crypto space have grown louder recently. Data revealed that Tether's market share surpassed 75% of the stablecoin market after a 20% increase over the past two years.

Part of the concerns are fueled by one of the industry's most notorious black swan events, the collapse of the FTX exchange, which led to $8.9 billion in lost user funds.

While FTX's collapse was due to its inability to honor mass customer withdrawals of $6 billion within three days, a hypothetical Tether implosion would be related to its banking partners, according to Sean Lee, the co-founder of IDA Finance.

Lee told Cointelegraph: "Bear market or not, the possibility of Tether imploding is more about its structural connectivity to its underlying assets and banking rails, not so much market movement.

Otherwise, USDT would've suffered during the last bear market, but instead, it was actually [USD Coin] USDC that debugged due to their reliance on Silicon Valley Bank and Signature Bank."

In May 2022, Tether honored over $16.7 billion worth of USDT customer withdrawals within ten days without any issues. In contrast, Washington Mutual Bank could not honor $16.5 billion worth of withdrawals within ten days, leading to the biggest banking failure in the US in September 2008.

The Too Big to Fail Argument

Others believe that Tether is too big to fail. Notably, Anndy Lian, author, and intergovernmental blockchain expert, doesn't expect Tether to face issues but warned that large centralized entities could pose a risk for the cryptocurrency space generally: "Cryptocurrencies were originally designed to operate without central control, promoting transparency, security, and user autonomy.

However, Tether, as a centralized stablecoin issuer, holds significant influence over the crypto market due to its widespread use for trading and liquidity." Cointelegraph has approached Tether for comment.

Transparency and Governance Issues

On Sept. 8, Tether invested $100 million in Adecoagro, acquiring a 9.8% stake in the Latin American agricultural giant. According to Cyber Capital's Bons, this latest investment gave us the first disclosure into Tether's governance structure.

He wrote, "The board of Tether Holdings only has two members: Giancarlo and Ludovicos. This implies that the USDT reserves are still not segregated in 2024, and these two have absolute control!" IDA Finance's co-founder, Lee, was also concerned about Tether's lack of transparency.

He wrote: "Tether is structured as a business, and their insistence on not providing the level of detailed transparency that ensures real trust from the community and institutional players is indeed concerning."

Despite Tether boasting over $118 billion worth of reserves in its second quarter, "independent attestations conducted by BDO," Cyber Capital's Bons claims that Tether has yet to submit its reserves for a third-party audit: "However, an 'Auditor's Report' or an 'Accountant Report' is not a formal audit at all!

Despite the claims, Tether has never submitted its alleged reserves to an accurate, unrestricted, third-party audit!"

"Concerns over Tether's lack of third-party audits are raising fears of a potential liquidity crisis."