Reports are emerging that the supposedly dollar-backed cryptocurrency Tether has ended their relationship with the company responsible for auditing them. Friedman LLP had been drafted in to prove to Tether naysayers that every USDT token did indeed have a dollar sitting in an account representing it. Tether stated at the end of last summer:
“Friedman LLP has been engaged to perform historical balance sheet audit procedures for Tether Limited. However, as the amount of Tethers in circulation has increased substantially in recent months, we have also asked Friedman to analyze our bank balances and our issued and outstanding token balance on an interim basis. Friedman agreed to perform consulting services for us in an effort to provide management with useful information concerning Tether’s cash position and Tether tokens issued and outstanding as of an interim date. Friedman was able to provide consulting services for us on an expedited basis, using a procedures date of September 15, 2017. These consulting services do not constitute anaudit or attestation engagement, which would include a significantly expanded scope of procedures and take substantially more time to complete.”
The idea of Tether was to have a stable cryptocurrency that would always be worth a fixed amount. This made perfect sense for crypto traders. They could safely exchange whichever cryptocurrency they wanted into USDT if they thought the price of all cryptos would decline. They could then buy back in using the Tether at the point they thought was the bottom of a dip.
The company claim to have over $2.2 billion in their bank accounts. This supposedly backs every Tether token 1:1, giving them a value of $1. However, critics allege that Tether, who are owned by the same interests as the crypto exchange Bitfinex, have been operating a fractional reserve system of sorts. Put simply, many believe Tether to be simply printing tokens out of thin air. A full audit of their finances would show the company as either a fraudulent operation or completely legit. It seems strange for either party to terminate the contract. Naturally, Friedman requires firms to audit in order to continue existing as a company and Tether have a growing community of doubters whose minds need putting at ease. Of course, Tether themselves may have cancelled the agreement to buy them a bit more time before their entire house of cards comes tumbling down.
Some within the cryptocurrency community were savvy enough to spot that Friedman had removed all mention of Tether and Bitfinex from the list of firms they were responsible for auditing off their website last week. Precise details of why the relationship has ended are still unknown and it is unclear which party terminated the agreement.
Doubts withing the community have been growing after being spearheaded by an anonymous blogger called Bitfinex’d. With the supply of Tether suddenly increasing by 50-100 million at a time, it’s hardly surprising that their criticism is being taken seriously. Then there’s the fact that the company’s own literature used to state:
“There is no contractual right or legal claim against us [Tether] to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money.”
This has since been updated in response to the various critics of the currency and company. However, without a full audit of all the accounts, it remains very difficult to trust that the company genuinely does have a dollar banked for every USDT in existence. This weekend’s news of Friedman’s departure from the position of auditors only serves to exacerbate this issue.