One of the biggest mysteries in crypto-universe relates to Tether’s bank balance. The cryptoasset has been in the eye of a storm regarding its backup reserves of the US dollar.
But a new report by Bloomberg may be proof that the stablecoin may be adequately capitalized after all. “Bank statements reviewed by Bloomberg News suggest those fears (of inadequate reserves) be unfounded,” the report states.
The publication claims to have seen statements for four separate months from the company. As an example, it states that the bank balance in Tether’s account with Noble Bank in Puerto Rico was $2.2 billion on Jan 31st this year. On that day, 2.195 billion Tether were traded. “The numbers also match up for September and October 2017,” the publication writes. According to the report, these numbers have also been shared with regulators.
While it has important implications for Tether’s status for the world’s biggest stablecoin, the Bloomberg report cannot be considered complete proof of the cryptoasset’s solvency. This is because the report details a snapshot of Tether’s accounting and does not provide full accounting of the state of its finances. That there are not acceptable standards for auditing stablecoins also does not help matters.
Why Tether’s Problems Are Important
Tether occupies an important place in the cryptocurrency ecosystem and its scandals have further added to the tarnish of scandals for cryptoassets. A clean chit for Tether could boost credibility of the ecosystem.
It is a stablecoin, meaning it trades at parity with the US dollar. A simple system of backing each Tether in existence with a corresponding US dollar is used to maintain the parity. The trading equivalency accomplishes a couple of things with the cryptocurrency ecosystem. First, it provides entry points for traders and investors, who can exchange their fiat currencies for cryptocurrencies. Second, Tether also works as a bank account of sorts for crypto exchanges because their unclear regulatory status means that they aren’t allowed to have such relationships. They use the cryptoasset to transfer capital between themselves. Finally, Tether also facilitates conversion between different cryptoassets by serving as an interim step during the conversion.
Beginning last year, critics have begun questioning Tether’s reserves and its role. Their primary contention is that Tether’s promise of backing each coin with an equivalent US dollar is not true. Tether’s refusal to submit itself to an audit has further complicated matters.
The cryptoasset’s banking relationships have also been rocky. Last year, Wells Fargo, which served as a correspondent bank for the Taiwanese bank where Bitfinex and Tether had accounts, blocked access to services for both. Tether has subsequently shopped around with other banks and finally settled on Noble Bank.
The SEC has also begun an investigation into Tether’s role in propping up bitcoin’s valuation during the run up in prices last year. According to some estimates, Tether is used in 30 percent of all bitcoin transactions at exchanges.
Tether’s problems have provided a reason for other exchanges and startups to introduce stablecoins of their own. For example, Boston-based Circle, which owns Poloniex, debuted USDC during the latter half of this year. Basis, a stablecoin backed by a bevy of high profile venture investors, was also launched but announced its shut down recently. Binance, the world’s biggest crypto exchange by trading volume, introduced Binance Coin, a cryptoasset meant for transactions within its network.