Does Tether finally get rid of the controversy over the dollar reserves?

After nearly six months of tearing off with the auditors, Tether cryptocurrency finally published a third-party report, Transparency Update, which claimed that the tether (usdt) was fully supported by the US dollar and made some additional detailed explanations.

For several months, Tether’s dollar reserves have been controversial. Critics on the Internet claimed that the company issued more tokens than its dollar reserves at the bank — an act that is essentially printing money. Tether has always denied this, but there is no conclusive evidence that it was issued at 1:1. until last Wednesday, a large three-party report was published to update its transparency.

However, this report may not allow this controversy to settle, because its disclaimer is too long, but the substance is very limited, there are three main doubts:

1. The report is not an audit

The report was written by a law firm called Freeh Sporkin & Sullivan, LLP (FSS). This is clearly not an accounting firm, so this report is not an audit. 

Tether’s general counsel, Stu Hoegner, stated that “the obstacles to auditing are too great. These barriers include the need for auditors to seriously comprehend the emerging industry knowledge; accounting standards before the appearance of cryptocurrencies, and uncertainty about the application of the rules and so on. Since these obstacles cannot be overcome at all. So we chose  FSS Law Firm to do it.”

Hoegner said that although FSS employs a different procedure than auditors, he believes that “its key conclusions are almost the same as those produced by the audit”—a snapshot of bank balances at a certain moment.

2. The information of the report only covers a limited time

This report covers only the time of June 1st. The law firm said that it "fully believes" that Tether had more deposits in the bank than the circulating USDT tokens on that day (specifically, the two independent institutions held a stock of 2.55 billion U.S. dollars，which is more than USDT's  circulation value- 2.54 billion U.S. dollars).

However, this report does not state the level of mortgage before or after any date. In other words, it does not indicate that the USDT has always been safe, or it is now fully endorsed by the US dollar.

3. The inspection procedure performed by FSS does not provide any guarantee

The law firm emphasized that the confirmation documents it made should not be mistaken for audit results and should not be conducted in accordance with generally accepted auditing or accounting standards. 

The law firm emphasized that the confirmation documents it made should not be mistaken for audit results and should not be conducted in accordance with generally accepted auditing or accounting standards. It did not make any statement about the adequacy of the information provided to the FSS, and pointed out that this information came from Tether and its bankers.

As mentioned above, even if the information is assumed to be correct, it is only responsible for the balance of the day. The firm stated in the report:"The FSS did not implement any procedures or draw any conclusions on the activities before or after the completion of the business on June 1, 2018."

In fact, the report of a law firm is unlikely to be as weighty as an audit firm's report, not only because their skills are significantly different. This is because, at least according to U.S. law, auditing companies usually not only have to be accountable to customers, but also to third parties. The decisions of these third parties depend on their integrity.

Michael K. Shaub, a professor of accounting at the Texas A&M University’s Mays Business School at Texas A&M University, said: “Compared with lawyers, auditors have greater responsibility for the reports they publish"

In this case, usdt tether has not become completely transparent due to this report. Tether's choice of a law firm to update its transparency proves nothing. If tether is responsible for the entire cryptocurrency market and all investors, it must be audited by an authoritative organization.