Both Sides of the Tether Debate: is the Crypto Market Vulnerable to Implosion?

Traders, investors, analysts, and journalists in the crypto sector engaged in an intense debate about USD-backed stablecoin Tether this week, pondering on the legitimacy and regulatory state of the asset.

Including billionaire investor Mike Novogratz, stated that Tether is backed by the US dollar and it is difficult for crypto projects to secure complete audits from major accounting firms.

Last year, a partial audit of USDT disclosed that Tether LLC, the company that oversees the development and operation of USDT, had held more than $2 billion in its USD bank account, verifying the holdings of the company.

Critics of Tether claimed the audit had no merit, as it did not include the evaluation of Tether's liabilities.

The vast majority of investors remain certain that USDT is fully backed by US dollars, and it most likely is backed by the USD. The issue is that for more than four years, investors have had to assume Tether LLC-backed USDT with the USD and have not been given clarity on the backing.

Simply put, while the probability of Tether being fully backed by the USD is high, it is not possible to prove it until audits are released.

The opaqueness in the operation of Tether LLC and the lack of clarity on the USD bank used by Tether to store its holdings of US dollars have led investors to speculate the solvency of the stablecoin.

On Oct. 18, when asked about the possibility to redeem USDT based on its 1:1 backing with the USD, trusted and regulated cryptocurrency exchange Kraken CEO Jesse Powell stated that he is unsure whether Tether LLC can process USDT redemptions when the spread between exchanges is high.

With Tether, due to the lack of transparency of its banking partner, it remains uncertain whether investors can simply request Tether LLC to process USD conversions in an immediate time frame.

Tether could be solvent, and it most likely is backed by the US dollars as suggested by billionaire investor Mike Novogratz.