Crypto Accounting Matters, And Tether Is (Finally) Moving In The Right Direction

There has been no shortage of controversy and debate in the blockchain and cryptoasset sector, and an organization that has been at the center of much of it has been the company Tether
and its token; USDT. Contentious Congressional hearings, international business media digging into records, fines levied by state agencies, and general suspicion by regulators have all been recurring themes that have been link to the firm almost since inception. Even with this permanent cloud of suspicious and doubt hovering over the organization, however, USDT has been – and remains – the largest stablecoin by market capitalization in the world.

Outside of the headlines and regulatory pressure that has been brought to bear in a more general sense against the organization, there has also been a more nuanced matter that has received greater attention; the accounting and audit practices of the firm. While accounting and audit standards and treatment are not usually associated with the most exciting headlines, they have certainly become the center of attention with regards to Tether.

Put simply, and up until very recently, Tether and the USDT had never undergone a full attestation conducted by an accounting firm that was (widely considered) to be up to the task of handling the attestation of assets totaling over $60 billion. In August 2022 this changed, with the announcement that Tether had hired BDO Italia to 1) take over the attestation work previously performed by a much smaller firm, and 2) work toward a monthly attestation deliverable.

Let’s take a look at why this announcement will have positive impacts on the cryptoasset space beyond just improved reporting for Tether.

Audit quality will improve. Cryptoassets of all kinds have been driven by the private sector ever since the initial launch of bitcoin, but that private sector leadership has not spurred the creation of crypto-specific accounting/audit rules by regulatory bodies. Compounding the questionable reporting and results that had previously been put forward by Tether – and others – the frequency and quality of these reports was also questionable. By bringing an accounting and audit firm with the global reach and in-house expertise into the mix, the quality of these specific engagement will improve.

An ancillary benefit to this combination will be that, as the thinking goes, if a company with the spotty track record of Tether can improve audit and reporting practices, that will set a positive example for other organization to do so. Given the recent spate of bankruptcies and failures by exchanges and other crypto related organizations, better audits and reporting will go a long way to improving the reputation and operations of the industry.

Greater regulatory clarity. It is no secret that regulators, and some specific politicians, have taken a rather negative view of cryptoassets ever since these topics went mainstream, with several high profile members of Congress calling for – in effect – the banning of cryptoassets. A major part of this hesitancy, doubt, and out-right hostility that exists on the side of policymakers toward crypto actors has to do with the lack of information that is available for review. One of the most common refrains that has been leveraged by regulators and policymakers is that regulations will be unable to keep pace with market actors.

In addition to the volatility that has been – some would say incorrectly – cited as a reason as to why greater regulatory clarity is impossible, the lack of consistent and standardized information from exchanges and crypto issuers is also a factor in this assessment. Better auditing, although not a perfect solution to these issues, will help address these open items.

Increased adoption. Combining the positive effects of better auditing, improved reporting, and more regulatory clarity, the market effect would seem to be that adoption and utilization of cryptoassets as a medium of exchange will increase. On the institutional front, which has been led by the adoption of stablecoins, better reporting and disclosure around these instruments will help increase the confidence with which organizations enter the crypto space. From the individual perspective it makes logical sense that as the general market attitude and confidence about crypto increases that the percentage of consumers comfortable using crypto will increase.

Given the fact that stablecoins, ones that actually are as stable as advertised, continue to lead the way toward broader crypto adoption, better auditing can be traced directly to more widespread usage of crypto as a medium of exchange.

Auditing and accounting rarely make headlines, and even more rarely make headlines for positive reasons. The recent announcement that Tether, the much maligned yet still largest stablecoin in the marketplace, will be working with BDO Italia to create more real-time assurance and attestation reports is one of those rare examples of a positive audit announcement. Better reporting, more consistency, and greater trust in the stablecoin sector at large will help increase adoption by both institutions and individuals alike; that is something that should be celebrated by all market participants. As always, the accounting matters, and matters more than many market actors might think.