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 crypto-asset industry, and one organization that has been at the center of much of it has been the company Tether.
Apart from the headlines and regulatory pressures that have been brought against the organization more generally, there has also been a more nuanced issue that has received greater attention; the firm’s accounting and auditing practices. Although the standards and treatment of accounting and auditing aren’t usually associated with the most exciting headlines, they have certainly become the center of attention when it comes to Tether.
Simply put, and until very recently, Tether and USDT had never had a full attestation conducted by an accounting firm that was (widely considered) up to the task of managing certification of assets totaling over $60 billion. In August 2022, that changed, with the announcement that Tether had hired BDO Italia to 1) take over attestation work previously done by a much smaller company, and 2) work towards a monthly attestation deliverable.
Let’s see why this announcement will have positive impacts on the crypto-asset space beyond just improving reporting for Tether.
Audit quality will improve. Crypto-assets of all kinds have been driven by the private sector since the initial launch of bitcoin, but this private sector leadership has not spurred the creation of crypto-specific accounting/auditing rules by regulatory bodies. regulations. In addition to the questionable reports and results that had previously been presented by Tether – and others – the frequency and quality of these reports were also questionable. By integrating an accounting and auditing firm with global reach and in-house expertise, the quality of these specific assignments will improve.
A side benefit of this combination will be that the thinking goes, if a company with Tether’s patchy track record can improve auditing and reporting practices, it will set a positive example for other organizations. Given the recent spate of bankruptcies and failures of exchanges and other crypto-related organizations, better audits and reporting will go a long way in improving the reputation and operations of the industry.
Greater regulatory clarity. It’s no secret that regulators, and some specific politicians, have taken a rather negative view of crypto-assets ever since these topics became mainstream, with several high-level members of Congress calling – in fact – for the prohibition of crypto-assets. Much of this hesitation, doubt, and outright hostility that exists on the side of policy makers towards crypto players has to do with the lack of information available for scrutiny. One of the most common refrains from regulators and policymakers is that regulations will not be able to keep pace with market players.
In addition to the volatility that has been – some would say wrongly – cited as a reason why greater regulatory clarity is impossible, the lack of consistent and standardized information from crypto exchanges and issuers is also a factor in this assessment. . Better auditing, while not a perfect solution to these issues, will help resolve these unresolved issues.
Increased adoption. Combining the positive effects of better auditing, improved reporting, and greater regulatory clarity, the market effect would appear to be that the adoption and use of cryptoassets as a means of exchange will increase. On the institutional front, which has been led by the adoption of stablecoins, better reporting and disclosures around these instruments will help increase the confidence with which organizations enter the crypto space. From an individual perspective, it makes sense that as the general market attitude and confidence in crypto increases, the percentage of consumers comfortable with crypto will increase.
As stablecoins, those that are actually as stable as advertised, continue to pave the way for wider adoption of crypto, better auditing can be directly attributed to more widespread use of crypto as a means of ‘exchange.
Auditing and accounting rarely make the headlines, and even more rarely for positive reasons. The recent announcement that Tether, the much-maligned but still the biggest stablecoin on the market, will work with BDO Italia to create more real-time assurance and attestation reports is one of those rare examples of an announcement. positive audit. Better reporting, more consistency, and greater trust in the stablecoin industry as a whole will help increase adoption by institutions and individuals; it is something that should be celebrated by everyone in the market. As always, accounting matters, and matters more than many market players realize.
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