Independent Ratings Agency ‘Weiss’ Issues a Fresh Alert on Tether

Controversial cryptocurrency startup Tether has been quite in news over the past month due to its alleged involvement with the Bitfinex who is said to have used the Tether tokens to manipulate the price of Bitcoin. In December 2017, the Commodity Futures Trading Commission (CFTC) issued subpoenas to the companies seeking an explanation for the use of Tether (USDT) tokens.

In a fresh new alert over the use of Tether tokens, independent rating agency ‘Weiss’ has asked crypto investors to remain cautious about using of Tether tokens and the dangers associated with it. The controversial “stablecoin” is actually backed by the U.S Dollar which means that the price of one Tether (USDT) token at any point is equal to the cost of one U.S Dollar.

Tether’s USDT coins have been one of the popular substitutes for U.S Dollar and are used largely by the exchanges. Survey says that there are a total of $2.3 billion outstanding USDT tokens in the market and Tether claims that all of these coins are backed by the U.S Dollar and are being held in their reserve.

However, what has caused the investor’s worry to grow is that in spite of many questions being raised about its operations, Tether lacks a completed auditing of its accounts. On the contrary, Tether has given more room for the suspicion to grow after it recently ‘dissolved’ its relationship with audit firm Friedman LLP.

Weiss analyst Juan M. Villaverde says The big issue: There’s never been an audit, and the folks behind Tether has been quite shady when asked. They have continuously claimed their tokens are backed 100% by actual dollars, yet they have failed to present any evidence to support this claim. On social media, there appears to be consensus that what Tether is actually doing is running a fractional reserve system. In other words, most observers claim they DO NOT have the dollars to back up all those Tether coins. I tend to agree. It’s just too suspicious.”

One of the major reasons for a big concern is that many non-fiat crypto exchanges use it as a proxy in place of real dollars for trading purpose. As a result, Tether today remains as the third most-used cryptocurrency with its trading volume regularly exceeding its market cap. As a result, the exchanges like Bitfinex using USDT tokens are highly dependent on Tether’s liquidity and puts investors to a big risk in case the government discards the tag of U.S Dollar to Tether.

Villaverde asks The consequences of hanky-panky could be far-reaching. What happens if Tether does turn out to be fraudulent? Or what happens if a major government determines that cryptocurrencies like Tether are being used by exchanges to avoid regulations? What if this large source of liquidity suddenly evaporates?”

If all this turns to be true, Conceivably, it could cause exchange failures. It could drive investors to liquidate their positions, causing sharp declines in market prices.”