Tether’s market share has soared past 75% of the entire stablecoin market, raising alarms about the potential influence of the stablecoin giant within the crypto industry. Investor anxiety is intensifying over Tether’s lack of third-party audits, with fears of a liquidity crisis reminiscent of the FTX collapse.
Justin Bons, founder of Cyber Capital, has been vocal about these concerns, suggesting that Tether could pose an even greater threat to the crypto ecosystem than FTX. In a September 14 post on X, he stated, “[Tether is] one of the biggest existential threats to crypto as a whole. We have to trust they hold $118 billion in collateral without proof! Even after the CFTC fined Tether for lying about their reserves in 2021.”
In 2021, the U.S. Commodity Futures Trading Commission (CFTC) fined Tether $41 million for misrepresenting its reserves. Recently, Tether’s market share has increased by 20% over the past two years, exacerbating worries about its influence in the crypto landscape.
The hypothetical collapse of Tether would differ from the FTX debacle, which resulted from the exchange’s inability to fulfill $6 billion in customer withdrawal requests within three days. Sean Lee, co-founder of IDA Finance, emphasized that a potential Tether crisis would be more closely tied to its banking partners. He noted, “The possibility of Tether imploding relates more to its structural connectivity to its underlying assets and banking rails, rather than market movements.”
Despite concerns, Tether has successfully managed significant withdrawals; in May 2022, it processed over $16.7 billion in USDT withdrawals in just ten days. In contrast, Washington Mutual Bank failed to meet $16.5 billion in withdrawal requests within the same timeframe, marking one of the largest banking collapses in U.S. history in 2008.
While some analysts argue that Tether is “too big to fail,” caution persists regarding centralized entities in the crypto space. Anndy Lian, an author and blockchain expert, acknowledged Tether’s substantial influence due to its central role in trading and liquidity. “Cryptocurrencies were designed to operate without central control, promoting transparency and user autonomy. Tether’s position as a centralized stablecoin issuer presents inherent risks.”
On September 8, Tether made headlines by investing $100 million in Adecoagro, acquiring a 9.8% stake in the Latin American agricultural company. Bons pointed out that this investment revealed Tether’s governance structure, which consists of just two board members—Giancarlo and Ludovicos—suggesting a lack of segregation in USDT reserves and absolute control by these individuals.
IDA Finance’s Lee echoed concerns over Tether’s transparency, stating, “Their refusal to provide the detailed transparency needed to build trust among the community and institutional players is indeed troubling.” Although Tether has claimed to have over $118 billion in reserves backed by independent attestations from BDO, Bons argues that these are not formal audits. “Tether has never submitted its alleged reserves for a real, unrestricted, third-party audit,” he stated.
