Tether, the world’s largest “stablecoin” cryptocurrency, has appointed an accountancy firm to verify the value of the real-world reserves which back its digital tokens. BDO Italia is set to carry out monthly audits of the company in a move designed to combat the perceived lack of clarity about the reserves, which are key in regulating the digital currency’s value.
In a statement today Tether said it has been working with BDO Italia, the Italian branch of global accounting firm BDO, since last month.
“The decision to work with the BDO organisation represents its promise to deliver considerable transparency for those holding Tether tokens, providing updates about issued tokens and reserves on a daily basis, supplemented by monthly assurance opinions,” the Tether statement said.
What is a stablecoin?
A stablecoin is a particular type of cryptocurrency which has its value attached to the performance of a conventional fiat currency or asset, often the US dollar. Because of this, it can usually avoid wild fluctuations in value experienced by currencies such as Bitcoin, while still maintaining the privacy and instant payments which cryptocurrencies offer.
A “reserve” of fiat currency equivalent to the amount of stablecoin in circulation is held by the issuer as an additional level of security.
Stablecoins are typically used as a vehicle currency to transfer fiat money into cryptocurrencies like Bitcoin, but many believe they could provide a reliable method for payments too. The UK government is one of those investigating the potential of stablecoins and announced earlier this year that it will regulate the currencies as part of a bid to make Britain a “global crypto-asset technology hub”.
However, the supposed stability of stablecoins was put in the spotlight in May when TerraUSD, a Singapore-based digital currency, collapsed. It did not have fiat currency reserves, instead using an algorithmic system to keep its price stable. When this failed, users were left out of pocket.
The collapse of Terra had big ramifications on the wider cryptocurrency market, impacting the value of other digital currencies, including Bitcoin.
Why does Tether need to prove its reserves?
The actual reserves held by Tether, which is pegged 1:1 to the dollar, have been the subject of much speculation, with the company having previously declined to give a detailed breakdown of the value of its assets. Last October, it was fined $41m by the US Commodity Futures Trading Commission over misleading statements it made between 2016-2019, suggesting it was fully backed by cash reserves.
This reprimand has perhaps spurred it into action. Tether’s stablecoin has an overall value of some $67bn at the time of writing, and the company’s most recent accounts, filed on 31 March, show it has assets worth $82.4bn, with $39bn of these in US treasuries.
By working with BDO, Tether says it plans to release more regular updates on its assets, and move towards a full auditing process. “This new relationship aligns with Tether’s dedication to transparency and is the next step in the company’s path toward a complete audit,” the company statement adds.
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