On September 12, 2024, Consumers’ Research, the United States’ oldest consumer advocacy organization, issued a public warning to U.S. governors regarding alleged risks associated with fiat-backed stablecoin issuer Tether (USDT).
Consumers’ Research is a non-profit organization (NPO) that focuses on educating consumers about products, services, and various issues affecting the marketplace. Founded in 1929, it was originally created to provide unbiased, accurate information to help people make informed decisions about the products they purchase. Over time, the organization expanded its mission to include promoting consumer protection, exposing deceptive business practices, and advocating for transparency in the marketplace.
Consumers’ Research often engages in public awareness campaigns, conducts research, and produces reports aimed at informing consumers about matters that impact their daily lives, from finance to privacy concerns. Their work is independent of government or corporate influence, which allows them to focus on empowering consumers with clear and straightforward information.
According to Consumers’ Research, Tether, which operates a stablecoin claimed to be backed one-to-one by the U.S. dollar, has failed to verify this claim through an independent audit—despite years of promises to do so.
The organization expressed concern that Tether’s alleged ongoing failure to conduct a credible audit could expose consumers to financial risks. Consumers’ Research claims that despite assurances from Tether’s leadership, including a 2022 statement from the CEO that an audit would be completed “within months,” no such audit has occurred. The group warns that this alleged lack of transparency could have significant consequences for consumers who rely on the company’s claims of dollar backing.
Furthermore, the NPO says that Tether has been involved in questionable practices in the past. They point to a 2019 investigation in which New York authorities found that Tether allegedly moved hundreds of millions of dollars to cover up an $850 million shortfall in client funds. Additionally, Consumers’ Research suggests that Tether’s situation bears similarities to other failed crypto firms, like FTX and Celsius, which they believe could potentially result in financial losses for consumers.
The organization also raises concerns about Tether’s alleged connections to sanctioned entities. According to Consumers’ Research, Tether has been involved in transactions with Garantex, a Russian crypto exchange that was sanctioned by the U.S. Treasury in 2022. The group further claims that Tether has continued to process transactions through BitPapa, another exchange that was sanctioned for allegedly aiding Russia’s war effort against Ukraine.
In light of these serious allegations, Consumers’ Research urges U.S. governors to assess Tether’s availability to consumers in their states and take steps to protect citizens from potential financial harm.
In contrast to the concerns raised by Consumers’ Research, Tether Holdings Limited released an Independent Auditors’ Report for the second quarter of 2024, conducted by BDO Italia, an independent third-party accounting firm. According to this report, Tether’s assets exceeded its liabilities by $5.33 billion as of June 30, 2024. This audit covers Tether’s Consolidated Financials and Reserves Report, confirming that the company’s stablecoin, USDT, is backed by assets such as cash, U.S. Treasury bills, precious metals, Bitcoin, and other investments.
The auditors from BDO Italia performed a series of rigorous checks, including verifying bank statements and reconciling balances to ensure the existence of the assets reported by Tether. The audit also involved sampling secured loans to verify that they were adequately collateralized. This independent review provides assurance that Tether’s issued tokens, including USDT, are backed by the corresponding reserves, mitigating some of the concerns surrounding transparency.
BDO Italia’s report highlights that the reserves exceed the liabilities of the companies issuing Tether tokens by over $5.33 billion. Furthermore, Tether’s management has applied IFRS 9 accounting standards in valuing its assets, ensuring they are recorded at fair value, including investments in precious metals and intangible digital assets.
In an effort to address concerns around transparency and illicit activity, Tether has made notable strides in recent months. According to a Decrypt report published earlier today, in July 2024, Tether hired Philip Gradwell, former chief economist at Chainalysis, to produce reports on USDT usage for U.S. regulators and investors. This move is part of Tether’s broader initiative to enhance transparency and accountability, particularly in response to increasing regulatory scrutiny of the cryptocurrency industry.
Furthermore, the Decrypt report highlighted Tether’s cooperation with law enforcement. CEO Paolo Ardoino revealed that the company has assisted over 145 law enforcement agencies since 2014, recovering $108.8 million in USDT linked to illegal activities. Tether has also partnered with TRM Labs and Tron to establish the T3 Financial Crime Unit, dedicated to identifying and freezing illicit USDT transactions on the Tron network.
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