Tether's 'assurance report' is not reassuring

One of the enduring mysteries in crypto is how Tether, an offshore firm with a long history of dodgy business and accounting practices, has held its role as one of the most important pillars of the industry. Skeptics have for years predicted the stablecoin giant, whose $82 billion market cap is the third biggest in crypto, would collapse—yet Tether continues to grow bigger and more influential.

On Wednesday, the firm sought to show that its finances are in order by releasing an “assurance report” that purports to show it is not only solvent but in better shape than ever. The document, prepared by an outfit called BDO Italia, shows Tether has assets that exceed its liabilities by more than $2 billion and it is now holding sizable chunks of gold and Bitcoin.

On its face, this sounds like great news for the crypto industry, large segments of which rely on the stablecoin as a nonvolatile place to park their wealth. But since this is Tether we’re talking about, the new report also points to ongoing dodginess. For starters, why is a company nominally worth $80 billion issuing an “assurance report” rather than, you know, an actual corporate audit? And why is it using an off-brand shop in Italy rather than a blue-chip accounting and consulting firm?

That’s far from the only odd thing going on. John Reed Stark, a consultant who formally ran the Securities and Exchange Commission’s enforcement division, posted a withering series of remarks about the report on Twitter. These include questions about why Tether tapped its CTO to attest to the company’s finances rather than a CFO, and why it eschews a raft of other basic compliance measures.

Then there is the issue of Tether holding gold and Bitcoin as part of its reserves, which are supposed to ensure that each of its digital tokens is backed by the equivalent in U.S. dollars. These gold and Bitcoin holdings performed fantastically during Q1, a period during which each asset climbed by double digits, and presumably helped Tether achieve what it calls an “excellent quarter.” But what happens if the market takes a nosedive and Tether has to mark down all that gold and Bitcoin? Couldn’t that lead to a situation where all those Tether tokens are not backed 1-to-1 by dollars?

In the traditional financial world, all these irregularities would raise alarm among traders who would start dumping their holdings in favor of something safer. But this is crypto, and as Bloomberg’s Matt Levine has noted, the rules are different and so people seem content to just accept Tether’s viability whether or not its accounting practices add up. I confess I’ve tried to make sense of Tether for years and can’t come up with a compelling reason to trust it—other than to note the company has been around for almost a decade now and keeps chugging along even as major U.S. banks implode left and right. If anyone can explain this to me, I’m all ears.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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