Emerging reports are indicating that the audit firm Friedman LLP and Tether Limited – the company behind the dollar-pegged USDT – have terminated their relationship. This has impacted today’s market significantly, with Tether ranked third by volume behind Bitcoin and Ethereum.
So often making headlines for the wrong reasons, Tether had in fact approached Friedman LLP, requesting to be audited. The move came in response to the incessant whispers concerning the legitimacy of Tether’s operation.
Tether allegedly receives $USD deposits from investors, proceeding to generate an equivalent number of USDT tokens which are then distributed to the necessary depositor. They recently announced a new token, EURT, that will peg to the Euro (€)
The stablecoin claims to have enough reserves in their bank accounts to back each and every USDT token, allowing for $USDT:$USD to exist on a 1:1 basis.
If the audit has in fact been scrapped, then the amount of reserves to Tether’s name cannot be verified by an independent third-party. Nor would it be possible to confirm that these reserves are in fact being used for their stated purpose (i.e., backing USDT tokens on a 1:1 basis).
Notably, Friedman did issue a preliminary consulting engagement (i.e., not an audit) last September, confirming that Tether had $442.9 million worth of cash in reserves. This aligned with the amount of USDT that had been issued at the time of its publication. Obviously, these findings are yet to be repeated in a full audit and should not be believed with any strong conviction.
Rarely do figures in a full audit ever radically vary from those in preliminary findings. Therefore, it must be appreciated that Friedman LLC may be the problem, and not Tether. In instances where the auditor unexpectedly ups their fees or charges excessive hours, the client may terminate the relationship.
As the story develops it will be interesting to witness the future moves of the multiple exchanges that are trading USDT base pairs (e.g. Binance, Bitfinex, Kraken) and collecting fees in Tether.
The market performed strongly on Sunday, with the vast majority of the top 100 virtual coins enjoying price rises. The widespread sell-off of Tether may be responsible for such a green day, however, as countless disgruntled USDT holders transferring their holdings to another cryptocurrency. Such behaviour creates buy-side pressure for several coins, which often is all it takes to ignite a market-wide bull run.
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