The following article is Consumer Research The author is Executive Director Will Hild.
Since their inception a decade ago, digital currencies have gained market acceptance both as an asset class and an alternative means of exchange, and some believe the development of dollar-denominated stablecoins could further strengthen the dominance of the US Dollar as the global reserve currency of choice.
However, as we move forward into a digital future, we must not forget that, like all financial systems, there are bad actors looking to exploit it. True crypto enthusiasts would agree that identifying bad actors is necessary for digital currencies to thrive. Further debacles like the collapse of Sam Bankman Freed’s FTX due to fraud could further erode market confidence and slow or even derail the development of the cryptocurrency market. That is why Consumers Research is denounces Tether as a threat to the future of money.
Tether, whose parent company iFinex is registered in Hong Kong, is a leading stablecoin operator. Stablecoins are a promising cryptocurrency innovation that offers the benefits of fast, low-cost transactions of digital currency without the volatility associated with cryptocurrencies such as Bitcoin. Stablecoins maintain a stable value because they are backed by reserve assets such as the US Dollar or commodities such as gold. In Tether’s case, it claims that its USD₮ stablecoin offering is backed at a 1:1 ratio with the US Dollar. However, Tether is unusual among its competitors in that it has not submitted its USD₮ to a rigorous independent financial audit.
There is good reason for concern.
In 2021, the U.S. Commodity Futures Trading Commission issued a notice of injunction against Tether. $41 million fine Tether was denied an audit for misrepresenting to customers that it had sufficient USD reserves to redeem all US Dollars in circulation for “equivalent fiat currency” between June 1, 2016 and February 25, 2019. Tether has continued to refuse to undergo a full audit.
In December 2023, S&P released their risk assessments for the top eight stablecoins. Tether received an astonishing four points.“Tether’s low score reflects a lack of information about who or what holds the reserve assets,” it said. Reuters reportsThe report continued, “While the majority of the holdings are in U.S. Treasury bonds and cash equivalents, there is also ‘significant exposure’ to riskier assets.”
Tether is There are only 60 staff members in total.The bank plans to expand to 90 employees. A U.S. financial institution of that size (managing $80 billion in assets, earning $1.6 billion in quarterly net revenues, or issuing assets held by millions of consumers) typically employs 10,000 people, of which about 100 (Average 1 percentEven if all 60 of Tether’s employees were compliance officers, it would still be a red flag for a significant “safety and soundness” issue, increasing the risk of mismanagement, non-compliance, or inappropriate market conduct.
Just as Tether refuses to come clean in an audit of its assets, the company appears equally unwilling to resolve issues surrounding its misuse by bad actors. Reportedly They prefer USD₮ to launder billions of dollars in profits from illegal gambling, drug trafficking, and investment fraud; and USD₮ is widely used by Chinese actors Currently, to fund fentanyl trafficking #1 cause of death among Americans Ages 18 to 45. Tether is Selection method Remittance destination Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad, HezbollahThis does not mean that Tether is directly encouraging the use of its stablecoin for drug trafficking or terrorism, but any respectable institutional operator should be concerned about their cryptocurrency being used for illicit purposes. Clearly, Tether has other priorities.
Last year, Sam Bankman Freed was convicted of defrauding customers out of $8 billion while he was CEO of centralized cryptocurrency exchange FTX. It’s no exaggeration to say that there were signs all over FTX. What were they naming their stadiums? Were they buying off celebrities? In retrospect, it seems like it was right in front of our eyes. The whole thing was a scam. Smart consumers should pay close attention to market signals.
Given Tether’s practices, Consumer Research is issuing a Consumer Warning about Tether because they pose an ongoing financial risk to consumers. At the same time, we remain optimistic about the future of U.S. digital currencies, including stablecoins, and our efforts to remove bad actors from the cryptocurrency market will help ensure its survival and fulfillment of its economic promise to U.S. consumers.
Consumer Research is the oldest consumer advocacy organization in the United States.
