Tether’s disclosures argue for crypto-specific accounting standards
Tether’s recent report regarding the reserves behind the USDT once again underscores the importance – and the need – for crypto-specific accounting, reporting and disclosure standards.
Stablecoins have made a tremendous amount since entering the crypto-asset landscape in the traditional way starting in 2018, and play a vital role in the continued fusion of fiat and crypto payment systems and technologies. That said, however, stable coins are still an emerging application and several fundamental questions remain unanswered to a lesser or greater extent depending on the coin in question.
Accounting and disclosure will not solve fundamental business problems, but can go a long way in ensuring that investors, regulators and users of these cryptoassets receive the information necessary to make effective decisions.
Starting this conversation is the reality that each stablecoin needs to be valued on an individual basis. This may seem obvious to some, but it is something that remains a political obstacle to wider adoption of crypto and blockchain. Putting the situation bluntly, the categorization of all crypto-assets as virtual currency by the Internal Revenue Services (IRS) and the lack of accounting standards from the Financial Accounting Standards Board (FASB) has led to an accounting situation that is neither precise nor durable.
But what does this have to do with Tether and the USDT reserve disclosures?
In fact, it has a lot to do with the conversations these disclosures sparked. To be used as a functional currency, any crypto-asset in question must be 1) stable, 2) reliable, and 3) have all claims made by the issuing entity that can be verified. This may not be surprising news to some, but underlies some of the biggest challenges that continue to prevent wider adoption of crypto.
Specifically, there are several elements that should be incorporated into the proposition of any stablecoin, going forward, seeking to serve as the base layer for a full-fledged crypto-active payment system. Let’s take a look at these considerations now.
Transparency. Perhaps paradoxically, one of the biggest issues that continues to permeate the blockchain and cryptoasset landscape is the lack of transparency, which has come to the fore after the disclosure of how the USDT is. Reserve. A common refrain and perception is that the vast majority of stablecoins are backed, backed or otherwise connected directly to the US dollar. Based on Tether’s recently released disclosure, this is not the case, which leads to an additional question worth considering.
Regulators, investors and users will – reasonably – expect to know exactly how these stablecoins are actually stabilized.
Fiduciary obligations. Simply put, a stablecoin issuer should (ideally) be viewed and viewed as a trustee on behalf of the users of the stablecoin issued by the entity. This involves a range of responsibilities, but since it connects directly to stable coins, there has to be a line between the reserves held to support the stable coin itself and the gains that those reserves create. For example, if an entity does not reserve – in fact – every stablecoin on a 1: 1 basis with US dollars and instead uses short-term credit equivalents, what is the appropriate allocation of those profits?
With total assets of over $ 50 billion, the potential profit on reserves can quickly become a big deal. It’s clear that not all stablecoins work on such a scale, but the concept doesn’t change.
Specificity of tokens. An additional issue that should become a more active part of the stablecoin conversation is exactly what is exactly discussed in the context of a stablecoin. Coming back to USDT, it should be noted that there are currently two main compartments of USDT; The USDT operates on both the TRON network and the Ethereum blockchain, with reported assets almost equally sharing the $ 50 billion total. From an investor, governance and business continuity perspective, ensuring that investors, policymakers and customers understand not only the specifics of the coin itself, but also the underlying blockchain on which she operates.
Stablecoins has demonstrated and proven that this facet of the crypto-asset landscape has enormous potential to accelerate the wider adoption and use of blockchain and crypto-related technology. The dynamic growth and development of this sector is proof that there is a legitimate market interest and demand for less volatile crypto-assets that can serve as an efficient medium of exchange; there is no doubt. In order to facilitate and accelerate subsequent adoption, however, greater transparency and standardization regarding the information communicated to the market and the way in which that data is communicated. The disclosures surrounding the USDT may have started this conversation, but they certainly won’t be the end of these problems.