Aug 19, 2022 - Economy & Business

Stablecoin issuer Tether has four clear days each year

Illustration of the Tether coin wearing sunglasses and a hoodie.
Photo Illustration: Lindsey Bailey/Axios. Photo: Justin Tallis/Getty Images

So far, Tether has only given the market transparency around exactly four days each year.

Why it matters: Tether is the third biggest cryptocurrency in the world, with a $67.5 billion market cap, and it's the most widely traded against the biggest cryptocurrencies, such as bitcoin and ethereum.

  • And yet there have always been question marks around its underlying assets.

Driving the news: Tether has brought on a new accountant, BDO Italia, a part of BDO Global, one of the largest networks of accountants in the world.

Zooming out: Tether has been issuing stablecoins pegged to the price of the U.S. dollar since 2014, but it has only gotten consistent about doing attestations of its assets since March 2021.

  • BDO is the third firm it's worked with over that time.

Be smart: One observation jumps out about each of these reports if you read them closely. Each one of them only attests to Tether's assets and liabilities for one day.

  • Every quarter, the attestation includes a sentence that makes this very clear. They are almost word for word the same across all three accounting firms.
  • Here's the version from the most recent report, from BDO: "The reporting date is limited to a point in time as of 30 June 2022. We did not perform procedures or provide any other assurance at any other date or time in this report."

Tether has never published a full audit of its assets and liabilities.

What they're saying: "With our new alignment with BDO, Tether will also focus on moving toward releasing its attestations from a quarterly to monthly basis and is the next step in the company’s path toward a complete audit," according to a Tether statement sent to Axios, via spokesperson Colin McLaren of FTI Consulting.

  • In other words: With four quarterly reports, there are only four days per year readers really know what's in Tether's reserves. But it's moving to 12 days if this news holds true.

The big picture: When looking at disclosures from crypto firms, time is an important part of the accountant's opinion statement to look at, according to Edward McGee, chief financial officer of the digital asset manager Grayscale.

  • The opinion will clearly state that it says nothing beyond accounts on a particular day. "That is just: at a point in time, this is what is in their account," he says.
  • That's a very limited disclosure, "versus a duration of time," McGee says.

In other words: These disclosures are silent about the rest of each three-month period.

  • There's no way to know that funds don't spend part of that time in much riskier instruments.
  • BDO did not reply to a request for comment.

Context: McGee walked Axios through some of the ins and outs of how accounting works.

  • Accounting firms make arrangements with management about what they will or won't look at, and this should be spelled out in the attestation, McGee explains.
  • "A compilation is a very low-level activity or a low-level assurance procedure," McGee says. Basically, the firm looks at the documents that management provides and agrees that everything adds up.

They can also go a bit further and, for example, verify numbers with banking partners. That should also be spelled out in the attestation.

"An audit is just a more prescribed version of a review," McGee says. Standards for an audit are defined by regional accounting organizations or regulators. "It is a much higher level of comfort."

What we're watching: McGee says that many of the most advanced crypto firms have started to adopt another level of third-party checks: service organization control (SOC) reports, which verify a firm is following best practices for its particular service.

  • McGee points out that Coinbase Custody, which it uses to store its digital assets, has already undertaken SOC reports.

Editor's note: This report has been updated to include comment from Tether.

Go deeper