Following the collapse of Terra's UST, stablecoin issuers may soon face stricter auditing protocols as investors seek more clarity.
Alexandre Lores, head of blockchain market research at Quantum Economics, said stablecoin issuers such as Tether, the issuer of USDT, the largest of the stablecoins, should offer external audits of the underlying assets.
"I think more transparency is needed to show what they [Tether] actually hold on balance sheet," Lores said on CoinDesk TV's "First Mover."
USDT, which is said to be pegged 1:1 to the value of the U.S. dollar, is hosted on blockchains such as Bitcoin, Ethereum and Tron. USDT recently saw a $10 billion drop in circulating supply, leaving its market cap at just over $73 million, according to CoinGecko.
With the feasibility and safety of stablecoins in general in question, USDT's issuer has had issues with regulators in the past. In October, it was fined more than $42 million by the Commodity Futures Trading Commission (CFTC) for alleged violations of the Commodity Exchange Act (CEA) and CFTC regulations. According to the CFTC, Tether's stablecoins were not fully backed at all times. Tether and a sister company also paid an $18.5 million settlement in February 2021 to close an investigation by the New York Attorney General's Office.
Now, as Tether seeks to reassure investors while meeting its legal obligations, its most recent certification report as of March 31 reveals that $286 million of Tether's assets were held in non-U.S. government bonds with maturities of less than 180 days. That revelation was not included in the previous report in December.
Lores said Tether's opacity will remain a problem because markets are declining and investors want to protect their assets. He said that could change if investors show more interest in bigger profits.
"It's a short-term change as long as the bear market continues, which I think will be at least the next year," Lores said.
He added that it makes no sense at all to back a stablecoin with a volatile asset, and "until they [Tether] provide transparent audits of their treasury in real time, that will remain a problem," he said.