Tether Hires New Accounting Firm 

The world’s biggest stablecoin has switched accounting firms again.

In an announcement this morning, Tether said it had hired BDO Italia, a subsidiary of BDO Inc., one of the world’s biggest accounting firms, to produce attestations about its reserve holdings – a basket of assets that is used to back up and facilitate quick redemption of Tether tokens. It also said that it was planning to provide monthly attestations of its holdings but did not provide a timeline. Currently, it publishes quarterly attestations.   

This is the third accountant engaged by Tether. It previously worked with two Cayman Island-based accounting firms. The stablecoin had engaged the services of MH Cayman back in Feb. 2021. The accounting firm’s parent company is being investigated by UK financial regulators.

A Troubled Stablecoin

As a bridge to the world of fiat currency, Tether has been a critical component of crypto’s growth. At its peak, it accounted for more than 90 percent of all transactions in the crypto ecosystem. In recent times, however, its market share has dropped to 43% amid a raft of controversies about its role and reserve holdings. Research published in 2020 suggested that bitcoin’s bull runs have been preceded by increased issuance of Tether, meaning the stablecoin is used to pump up the cryptocurrency’s price for profits.

The stablecoin’s reserves have also increasingly come under a cloud. iFinex, the company behind Tether, paid $18.5 million as fine to the New York Attorney General in 2021 to settle charges that it had commingled reserve holdings with other cash, leading to a misrepresentation of its reserves to investors.

Tether was taken to task even after it began publishing attestations because its reserve holdings consisted of commercial paper – a market that has witnessed significant turmoil since last year. In July, it announced that the company announced that it had reduced its holdings of commercial paper to $3.7 billion.

Will Tether’s New Accountant Deliver?

The problem with Tether’s claims is that they are not backed by proof. The stablecoin has refused to submit to a comprehensive audit from a reputable accounting firm and deflected questions about its reserve holdings.

Even the latest announcement falls short of expectations.

An attestation is different from an audit. It provides a snapshot of holdings at a certain point in time and does not involve rigorous analysis of risk management. Added to this is the fact that BDO Inc., the parent firm for BDO Italia, has had its own run-ins with the law. In 2015, the firm’s US division was charged with “dismissing red flags” and issuing “false and misleading unqualified audit opinion” by the Securities and Exchange Commission (SEC). The firm’s UK subsidiary was criticized by the country’s financial council for “unacceptable audits” earlier this year.

A draft of stablecoin regulation is expected to be discussed during the House’s Fall session. Its requirements for stablecoin reserve disclosures are far more comprehensive beyond what Tether provides currently. If Tether is to survive as a legitimate stablecoin, it will have to work fast to clean up its act and move beyond attestations to audits.

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