Investor anxiety surrounding Tether, the issuer of the world’s largest stablecoin USDT, is intensifying amid growing comparisons to the infamous FTX collapse.
With a market cap exceeding $118 billion, Tether’s continued lack of third-party audits is drawing scrutiny, raising fears of a potential liquidity crisis similar to FTX’s downfall.
The latest wave of concern was sparked by Justin Bons, founder of Cyber Capital, who in a Sept. 14 X post expressed his doubts about Tether’s transparency, calling it “one of the biggest existential threats to crypto.”
He emphasized the risk of trusting Tether to hold $118 billion in collateral without any independent proof. Bons further cited the 2021 United States Commodities and Futures Trading Commission (CFTC) fine, in which Tether was penalized $41 million for misrepresenting its reserves.
Tether's Growing Market Influence Raises Red Flags
Tether’s influence over the crypto market has only grown, with the stablecoin now holding more than 75% of the entire stablecoin market share, a 20% increase over the past two years. This increasing dominance has added fuel to investor concerns, particularly about the consequences of a potential Tether collapse.
Also read: Potential Impact of Kamala Harris on the Crypto Sector: Insights from Nansen CEO at Token2049
While Tether remains operational and has demonstrated resilience in previous market downturns, many industry insiders fear the structural risks tied to its banking relationships. According to Sean Lee, co-founder of IDA Finance, Tether’s potential downfall would be rooted in its connections to its banking partners, contrasting with the FTX collapse, which stemmed from mass customer withdrawals that couldn’t be honored in time.
Lee explained that during the last bear market, Tether weathered significant market volatility, while its competitor USD Coin (USDC) suffered a depeg due to reliance on failed banks like Silicon Valley Bank and Signature Bank. He emphasized that Tether’s stability relies heavily on its banking infrastructure.
Tether’s Response to Withdrawals Compared to Major US Bank Failures
Tether’s track record during market instability has provided some comfort to investors. In May 2022, Tether honored over $16.7 billion worth of USDT customer withdrawals within 10 days—an impressive feat considering that Washington Mutual, the largest U.S. bank failure in history, couldn’t honor $16.5 billion in withdrawals during the 2008 financial crisis.
However, critics warn that no entity is too big to fail. Blockchain expert Anndy Lian highlighted the inherent risks posed by centralized entities like Tether, despite their significant role in the crypto ecosystem. He noted that Tether’s size and influence could pose systemic risks, as cryptocurrencies were originally designed to operate in a decentralized, transparent manner, without the central control Tether embodies.
Concerns Over Transparency and Governance
Tether’s governance and transparency are additional points of contention. On Sept. 8, Tether invested $100 million in Adecoagro, a Latin American agricultural giant, acquiring a 9.8% stake. This move provided a rare glimpse into Tether’s governance structure, which, according to Bons, is concerningly centralized, with just two board members—Giancarlo and Ludovicos—holding absolute control over the company.
Bons also raised alarms about Tether’s ongoing refusal to undergo a full third-party audit, despite boasting over $118 billion in reserves. Tether has relied on “independent attestations” conducted by accounting firm BDO. However, Bons argues that these attestations are not equivalent to a full audit, leaving room for doubt about the actual status of Tether’s reserves.
As Tether’s dominance in the cryptocurrency market continues to grow, so do the calls for increased transparency and accountability. The stablecoin giant’s refusal to submit to third-party audits, combined with its influence over the market, has raised alarms among investors and industry experts alike. With memories of the FTX collapse still fresh, concerns about Tether’s long-term stability and its potential impact on the broader crypto market are likely to persist until more transparency is provided.
While Tether has survived past market turbulence, the lingering questions around its reserves and governance will continue to fuel speculation and anxiety in the crypto community.
Commenti