All About Tether Reserves: An Insight for Accountants
When it comes to cryptocurrencies or crypto companies, none of us would like to believe that there is a problem that can’t be addressed by internal control. Although most of the accountants think that if the fundamentals are clear enough, it becomes easier to control the problems. And in most of the cases of frauds, the fundamental accounting is not clear leading to chaos.
There are various changes made in the Tether’s definition of assets backing the stablecoin recently and being an accountant it is necessary to get a clear idea of these changes. When we talk about the holds in the reserves, the first thought that crosses the minds of accountants is only about the cash that is equivalent to the stablecoin such as Certificates of Deposit or CDs or US Treasury Bonds. And some of the accountants believe that Tether should increase the transparency within its system as is always trades near its peg of 1 USD which eventually satisfies the market.
With a market capitalization of more than $2 billion, Tether is one of the oldest stablecoins. Along with being the oldest, Tether is also the stablecoin that is used and traded widely in the crypto space although it has transparency issues along with potential problems of fractional reserve lending.
The transparency of Tether comes into question as there is no audit available. In the mid of 2017 Tether held audits which were soon taken back by the company. The basic concept behind the fiat-backed stablecoin is to reserve the fiat currency of the customer until they are ready to cash the money. And to know all the in and outs or flow of money in a company you need audits. And in the absence of audits, it is almost impossible to keep track of the movements on the network and keep account of the source of funds, restrictions or encumbrances.
Tether modified the definition of “reserves” on the 26th of Feb this year. The definition was updated saying that “All the traditional currency and cash equivalents could be fiat and other liquid products. Despite current guidance of classifying cryptocurrency as an intangible asset, it is likely that it could be considered a cash equivalent also.”
It implies that the customers might be the origin of the source. This can create a massive problem as the source, or the party that the reserve has come from has the complete right to claim the amount anytime they want.