How can I verify that Tether is fully backed?

Tether (USDT) is one of the most widely used stablecoins, pegged to the value of fiat currencies like the U.S. dollar. A recurring concern for users and investors is verifying whether Tether is fully backed by reserves. While Tether asserts that each USDT is fully backed, verifying this claim requires examining multiple sources of information.

1. Tether's Transparency Reports

Tether publishes regular attestation reports on its official website. These reports are provided by third-party accounting firms, verifying the reserves backing USDT. To verify:

• Visit Tether's Transparency Page.
• Review the Consolidated Reserves Reports (CRR) to check the composition of Tether’s reserves.

Key Points to Check in Reports:

• Total Assets vs. Liabilities: Ensure the assets listed exceed or match the circulating supply of USDT.
• Reserve Composition: Examine whether reserves are held in cash, cash equivalents, commercial paper, or other assets.

2. Third-Party Attestations

Tether’s attestation reports are typically provided by an external auditor. For example, BDO Italia is one of the firms that has audited Tether’s reserves. These attestations are not full audits but provide a snapshot of Tether’s holdings at a specific time.

Steps for Verification:

• Identify the auditor mentioned in the reports.
• Research the credibility of the auditing firm.
• Look for red flags like delays in report publication or controversies about the auditor.

3. Blockchain Transparency

Tether operates on multiple blockchain networks, such as Ethereum, Tron, and Solana. The total circulating supply of USDT on these blockchains is publicly visible.

How to Verify:

• Use blockchain explorers like Etherscan for Ethereum or Tronscan for Tron.
• Compare the total USDT supply on-chain with the figures in Tether’s transparency reports.

4. Regulatory Compliance

Tether’s legal and regulatory compliance can also be an indicator of its reliability. It’s important to track updates from regulatory bodies like:

• U.S. Commodity Futures Trading Commission (CFTC): Tether has previously been fined for misrepresenting its reserves.
• New York Attorney General (NYAG): Tether settled a case with the NYAG in 2021, agreeing to provide more transparency about its reserves.

Look for:

• Details of legal settlements and commitments made by Tether.
• Statements from regulatory agencies confirming compliance.

5. Reserve Composition Breakdown

Tether has disclosed that its reserves include more than just cash. The composition can include:

Concerns to Evaluate:

• The quality and liquidity of commercial papers.
• Exposure to high-risk investments or illiquid assets.

6. Independent Research and Analysis

Numerous blockchain analytics firms and independent researchers investigate Tether’s reserves. Follow credible sources such as:

• CoinDesk or The Block for investigative reports.
• Independent blockchain analysts on platforms like Twitter or Medium.

Conclusion

While Tether provides attestations and claims full backing, the verification process requires scrutiny of transparency reports, third-party attestations, reserve composition, and regulatory compliance. As of now, Tether has taken steps to improve its transparency, but questions remain about the liquidity and quality of its reserves. Investors should weigh these factors when using or holding USDT.

If Tether’s claims raise doubts, consider alternatives like USDC (USD Coin) or DAI, which offer similar functionalities but with potentially greater transparency.