Is the Cyrptocurrency Tether Actually Backed by US Dollars?

THE CRYPTOCURRENCY WORLD, with its volatility, is all about FUD—fear, uncertainty, doubt. And nothing is generating more FUD right now than an unusual currency called tether.

Unlike bitcoin and its many siblings, tether is what is called a stablecoin, an entity designed to not fluctuate in value. With most cryptocurrencies prone to wild swings, tether offers people who dabble in the market the option of buying a currency that its backers say is pegged to the US dollar. Trading bitcoin for dollars at a bank can be cumbersome and costly; by comparison, acquiring tether is simple, cheap and fast.

But in recent weeks a chorus of skeptics has called into question nearly everything about tether. The root of the controversy is whether the company behind it, also called Tether, is telling the truth when it claims that every unit in circulation is matched by a US dollar it holds in reserve. If the company has a dollar for every tether, that means in theory any holder can sell tethers back to the company for an equal number of dollars at any time. This belief keeps the value of a tether pegged to a dollar.

Critics on Twitter, Reddit, in blog posts, and at a recent bitcoin conference have been demanding that the company prove its reserves through external audits. Not only has Tether failed to do so, last week it confirmed rumors that it had severed ties with Friedman LLP, the accounting firm on tap to perform those audits. On Tuesday, Bloomberg reported that the US Commodity Futures Trading Commission had sent subpoenas to Tether. A Tether spokesperson said, "We routinely receive legal process from law enforcement agents and regulators conducting investigations. It is our policy not to comment on any such requests." The spokesperson declined other comment.

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