Cryptocurrency platform Tether is facing increasing scrutiny from regulators as they try to understand its cash reserves, organizational structure and more, according to a Bloomberg report Thursday (Oct. 7).
Tether has issued 48 billion Tethers — said to be valued at $1 each — this year, but it remains unclear if the company has enough financial backing to support that issuance and how they’d handle it if all the stablecoin owners decided to cash in their investments at the same time, the report says.
Treasury Secretary Janet Yellen met with the chairman of the Federal Reserve, the head of the Securities and Exchange Commission and six other top officials to look into Tether in July before it put the U.S. financial system at risk.
The company that issues the Tether currency, Tether Holdings Ltd., collects money from people who want to trade crypto and credits their digital wallets. People can send Tethers to cryptocurrency exchanges and use them to buy Bitcoin, Dogecoin or any of the thousands of other digital coins.
“Exactly how Tether is backed, or if it’s truly backed at all, has always been a mystery,” the Bloomberg report says. “For years a persistent group of critics has argued that, despite the company’s assurances, Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud.”
Including the 48 billion Tethers issued this year, there are 69 billion of the coins in circulation. That would mean Tether would be one of the 50 largest banks at a value of $69 billion.
In July, the U.S. Justice Department began investigating whether Tether executives hid the true nature of some transactions, and if its banking partners had been aware that transactions had been tied to cryptocurrencies.
Earlier this year, the office of New York Attorney General Letitia James reached an $18.5 million settlement with Tether and iFinex (which operates the exchange Bitfinex) after allegations that the companies had moved money to cover $850 million of losses and that the stablecoins aren’t always backed by reserves.