The asset-backing risk of stablecoin trading: the case of Tether
DOI:
https://doi.org/10.18559/ebr.2024.1.1211Keywords:
balance sheet, volatility, risk management, IFRS, auditing, stablecoinsAbstract
This article aims to analyse the asset-backing risk of stablecoins, focusing on international accounting standards, classification criteria, and auditing standards and using Tether as a case study. It examines Tether’s issuance, backing, controls, ratios, and regulations to assess risk transmission and mitigation. The results suggest a need for unified and strengthened accounting and auditing standards to enhance user confidence. Liquidity, solvency, and debt ratios were applied to Tether's balance sheets; while Tether has made efforts to increase its transparency, and although it possesses highly liquid assets, challenges remain regarding its liquidity, solvency, and debt. An independent auditors' valuation is crucial for investor confidence, demonstrating that more specific regulations are required for stablecoins. Future research should explore other stablecoins to comprehensively understand the accounting and auditing challenges in the field.
Downloads
References
AICPA. (2019). Accounting for auditing of digital assets. Wiley.
View in Google Scholar
AICPA. (2020). Blockchain fundamentals for accounting and finance professionals certificate. Wiley.
View in Google Scholar
Alvarez-Pincay, D. E., Toala-Bozada, S. P., Delgado-Gutierrez, Z. M., Peñafiel-Loor, J. F. Lucio-Pillasagua, A. del J., & Saltos-Buri, V. del R. (2018). Sistemas de Contabilidad con Criptomonedas: Retos para la Auditoría Pública Tradicional. Polo Del Conocimiento, 3(8), 196. https://doi.org/10.23857/pc.v3i8.607
DOI: https://doi.org/10.23857/pc.v3i8.607
View in Google Scholar
Almeida, J., & Gonçalves, T. C. (2022). Portfolio diversification, hedge and safe-haven properties in cryptocurrency investments and financial economics: A systematic literature review. Journal of Risk and Financial Management, 16(1), 3. https://doi.org/10.3390/jrfm16010003
DOI: https://doi.org/10.3390/jrfm16010003
View in Google Scholar
Alonso, S. L. N., Fernández, M. Á. E., Bas, D. S., & Rico, C. P. (2024). El Salvador: An analysis of the monetary integration law and the bitcoin law. Brazilian Journal of Political Economy, 44(1), 189–209. https://doi.org/10.1590/0101-31572024-3459
DOI: https://doi.org/10.1590/0101-31572024-3459
View in Google Scholar
Andryushin, S. A., & Kochergin, D. A. (2022). Stablecoins as a new form of digital money: Emission, circulation, regulation and risk management. Voprosy Ekonomiki, 6, 42–68. https://doi.org/10.32609/0042-8736-2022-6-42-68
DOI: https://doi.org/10.32609/0042-8736-2022-6-42-68
View in Google Scholar
Arner, D. W., Auer, R., & Frost, J. (2020). Stablecoins: Risks, potential and regulation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3979495
DOI: https://doi.org/10.2139/ssrn.3979495
View in Google Scholar
Arslanian, H. (2022). Stablecoins. In The Book of Crypto (pp. 149–170). Springer International Publishing. http://dx.doi.org/10.1007/978-3-030-97951-5_7
DOI: https://doi.org/10.1007/978-3-030-97951-5_7
View in Google Scholar
Auer, R., & Tercero-Lucas, D. (2022). Distrust or speculation? The socioeconomic drivers of U.S. cryptocurrency investments. Journal of Financial Stability, 62, 101066. https://doi.org/10.1016/j.jfs.2022.101066
DOI: https://doi.org/10.1016/j.jfs.2022.101066
View in Google Scholar
Baker, H. K., Benedetti, H., Nikbakht, E., & Smith, S. S. (2023). The Emerald Handbook on Cryptoassets: Investment Opportunities and Challenges. Emerald Group Publishing.
DOI: https://doi.org/10.1108/9781804553206
View in Google Scholar
Barry, J. (2020). Addressing the Regulatory, Supervisory and Oversight Challenges Raised by Global Stablecoin Arrangements. In https://www.fsb.org/wp-content/uploads/State-Street-Bank.pdf (p. 2). Bank for International Settlements: Financial Stability Board.
View in Google Scholar
Baughman, G., & Flemming, J. (2023). Global demand for basket-backed stablecoins. Review of Economic Dynamics, 48, 244–264. https://doi.org/10.1016/j.red.2022.05.003
DOI: https://doi.org/10.1016/j.red.2022.05.003
View in Google Scholar
Benedetti, H., & Smith, S. S. (2022). An Examination of Stablecoin Reporting, Economic Impact & Policy Forecasts. Economic Impact & Policy Forecasts (June 15, 2022)
DOI: https://doi.org/10.2139/ssrn.4142625
View in Google Scholar
Berentsen, A., & Schär, F. (2019). Stablecoins: The quest for a low-volatility cryptocurrency. The Economics of Fintech And Digital Currencies, 65-75.
View in Google Scholar
Bhambhwani, S. M., & Huang, A. H. (2023). Auditing decentralized finance. The British Accounting Review, 101270. https://doi.org/10.1016/j.bar.2023.101270
DOI: https://doi.org/10.1016/j.bar.2023.101270
View in Google Scholar
BOE. (2002). https://www.boe.es/doue/2002/243/L00001-00004.pdf
View in Google Scholar
Briola, A., Vidal-Tomás, D., Wang, Y., & Aste, T. (2023). Anatomy of a Stablecoin’s failure: The Terra-Luna case. Finance Research Letters, 51, 103358. https://doi.org/10.1016/j.frl.2022.103358
DOI: https://doi.org/10.1016/j.frl.2022.103358
View in Google Scholar
Bullmann, D., Klemm, J., & Pinna, A. (2019). In search for stability in crypto-assets: Are stablecoins the solution? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3444847
DOI: https://doi.org/10.2139/ssrn.3444847
View in Google Scholar
Catalini, C., & Shah, N. (2021). Setting standards for stablecoin reserves. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3970885
DOI: https://doi.org/10.2139/ssrn.3970885
View in Google Scholar
Chen, H.-Y. (2020). Stablecoins, cryptocurrencies, and blockchain. Global FinTech Review. https://doi.org/10.21428/ce41c397.1a7541e2
DOI: https://doi.org/10.21428/ce41c397.1a7541e2
View in Google Scholar
Clark, J., Demirag, D., & Moosavi, S. (2020). Demystifying Stablecoins. Queue, 18, 39 - 60. https://doi.org/10.1145/3387945.3388781.
DOI: https://doi.org/10.1145/3387945.3388781
View in Google Scholar
Clements, R. (2021). Built to fail: The inherent fragility of algorithmic stablecoins. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3952045
DOI: https://doi.org/10.2139/ssrn.3952045
View in Google Scholar
Coccaro, A. M. (2021). Implicancias contable de las criptomonedas. Cuestionar.
View in Google Scholar
Coinmarketcap. (2024, January). Cryptocurrency prices, charts and market capitalizations. CoinMarketCap. https://coinmarketcap.com/coins/
View in Google Scholar
Conrad, C., Custovic, A., & Ghysels, E. (2018). Long- and short-term cryptocurrency volatility components: A GARCH-MIDAS analysis. Journal of Risk and Financial Management, 11(2), 23. https://doi.org/10.3390/jrfm11020023
DOI: https://doi.org/10.3390/jrfm11020023
View in Google Scholar
Echarte Fernández, M. Á., Náñez Alonso, S. L., Reier Forradellas, R., & Jorge-Vázquez, J. (2022). From the Great Recession to the COVID-19 Pandemic: The risk of expansionary monetary policies. Risks, 10(2), 23. https://doi.org/10.3390/risks10020023
DOI: https://doi.org/10.3390/risks10020023
View in Google Scholar
Eichengreen, B., T. Nguyen, M., & Viswanath-Natraj, G. (2023). Stablecoin Devaluation Risk. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4460515
DOI: https://doi.org/10.2139/ssrn.4460515
View in Google Scholar
Elsayed, A. H., Gozgor, G., & Yarovaya, L. (2022). Volatility and return connectedness of cryptocurrency, gold, and uncertainty: Evidence from the cryptocurrency uncertainty indices. Finance Research Letters, 47, 102732. https://doi.org/10.1016/j.frl.2022.102732
DOI: https://doi.org/10.1016/j.frl.2022.102732
View in Google Scholar
Ferreira, A. (2021). The curious case of stablecoins—balancing risks and rewards? Journal of International Economic Law, 24(4), 755–778. https://doi.org/10.1093/jiel/jgab036
DOI: https://doi.org/10.1093/jiel/jgab036
View in Google Scholar
Giudici, P., Leach, T., & Pagnottoni, P. (2022). Libra or Librae? Basket based stablecoins to mitigate foreign exchange volatility spillovers. Finance Research Letters, 44, 102054. https://doi.org/10.1016/j.frl.2021.102054
DOI: https://doi.org/10.1016/j.frl.2021.102054
View in Google Scholar
Grobys, K., Junttila, J., Kolari, J. W., & Sapkota, N. (2021). On the stability of stablecoins. Journal of Empirical Finance, 64, 207–223. https://doi.org/10.1016/j.jempfin.2021.09.002
DOI: https://doi.org/10.1016/j.jempfin.2021.09.002
View in Google Scholar
Hampl, F., & Gyönyörová, L. (2021). Can Fiat‐backed Stablecoins Be Considered Cash or Cash Equivalents Under International Financial Reporting Standards Rules?. Australian Accounting Review. https://doi.org/10.1111/AUAR.12344.
DOI: https://doi.org/10.1111/auar.12344
View in Google Scholar
Hoang, L. T., & Baur, D. G. (2021). How stable are stablecoins? The European Journal of Finance, 1–17. https://doi.org/10.1080/1351847x.2021.1949369
DOI: https://doi.org/10.1080/1351847X.2021.1949369
View in Google Scholar
Hsieh, S.-F., & Brennan, G. (2022). Issues, risks, and challenges for auditing crypto asset transactions. International Journal of Accounting Information Systems, 46, 100569. https://doi.org/10.1016/j.accinf.2022.100569
DOI: https://doi.org/10.1016/j.accinf.2022.100569
View in Google Scholar
Husna, A., & Satria, I. (2019). Effects of Return on Asset, Debt to Asset Ratio, Current Ratio, Firm Size, and Dividend Payout Ratio on Firm Value. International Journal of Economics and Financial Issues, 9(5), 50–54. https://doi.org/10.32479/ijefi.8595
DOI: https://doi.org/10.32479/ijefi.8595
View in Google Scholar
IASB (2019). Tenencia de Criptomonedas. https://www.ifrs.org/content/dam/ifrs/supporting-implementation/agenda-decisions/2019/es-holdings-of-cryptocurrencies-june-2019.pdf
View in Google Scholar
IASB. (2021). Agenda y plan de trabajo. https://asepuc.org/wp-content/uploads/2021/04/Agenda-IASB-2022-2026-Noticia-Abril-2021.pdf
View in Google Scholar
ICAC.(2023).https://www.icac.gob.es/contabilidad/normativas/internacionales#portada
View in Google Scholar
Jarno, K., & Kołodziejczyk, H. (2021). Does the design of stablecoins impact their volatility? Journal of Risk and Financial Management, 14(2), 42. https://doi.org/10.3390/jrfm14020042
DOI: https://doi.org/10.3390/jrfm14020042
View in Google Scholar
Kaczmarek, J., Alonso, S. L. N., Sokołowski, A., Fijorek, K., & Denkowska, S. (2021). Financial threat profiles of industrial enterprises in Poland. Oeconomia Copernicana, 12(2), 463–498. https://doi.org/10.24136/oc.2021.016
DOI: https://doi.org/10.24136/oc.2021.016
View in Google Scholar
Kampakis, S. (2022). Auditing tokenomics: A case study and lessons from auditing a stablecoin project. The Journal of The British Blockchain Association, 5(2), 1–7. https://doi.org/10.31585/jbba-5-2-(1)2022
DOI: https://doi.org/10.31585/jbba-5-2-(1)2022
View in Google Scholar
Klages-Mundt, A., Harz, D., Gudgeon, L., Liu, J.-Y., & Minca, A. (2020). Stablecoins 2.0: Economic foundations and risk-based models. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3633542
DOI: https://doi.org/10.2139/ssrn.3633542
View in Google Scholar
Kozhan, R., & Viswanath-Natraj, G. (2021). Decentralized stablecoins and collateral risk. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3866975
DOI: https://doi.org/10.2139/ssrn.3866975
View in Google Scholar
Lessambo, F. I. (2022). Financial ratios analysis. In Financial Statements (pp. 229–275). Springer International Publishing. http://dx.doi.org/10.1007/978-3-031-15663-2_17
DOI: https://doi.org/10.1007/978-3-031-15663-2_17
View in Google Scholar
Lessambo, F. I. (2018). Financial ratios analysis. In Financial Statements (pp. 207–247). Springer International Publishing. http://dx.doi.org/10.1007/978-3-319-99984-5_17
DOI: https://doi.org/10.1007/978-3-319-99984-5_17
View in Google Scholar
Łęt, B., Sobański, K., Świder, W., & Włosik, K. (2023). What drives the popularity of stablecoins? Measuring the frequency dynamics of connectedness between volatile and stable cryptocurrencies. Technological Forecasting and Social Change, 189, 122318. https://doi.org/10.1016/j.techfore.2023.122318
DOI: https://doi.org/10.1016/j.techfore.2023.122318
View in Google Scholar
Li, C., & Shen, Y. (2021). The potential impacts and risks of global stablecoins. China Economic Journal, 14(1), 39–51. https://doi.org/10.1080/17538963.2021.1872167
DOI: https://doi.org/10.1080/17538963.2021.1872167
View in Google Scholar
Liao, G. Y., & Caramichael, J. (2022). Stablecoins: Growth potential and impact on banking. International Finance Discussion Paper, 2022(1334), 1–26. https://doi.org/10.17016/ifdp.2022.1334
DOI: https://doi.org/10.17016/IFDP.2022.1334
View in Google Scholar
Lin, F., Liang, D., & Chen, E. (2011). Financial ratio selection for business crisis prediction. Expert Systems with Applications, 38(12), 15094–15102. https://doi.org/10.1016/j.eswa.2011.05.035
DOI: https://doi.org/10.1016/j.eswa.2011.05.035
View in Google Scholar
Liu, Q., Yu, L., & Jia, C. (2020, September). MovER: Stabilize decentralized finance system with practical risk management. 2020 2nd Conference on Blockchain Research & Applications for Innovative Networks and Services (BRAINS). http://dx.doi.org/10.1109/brains49436.2020.9223274
DOI: https://doi.org/10.1109/BRAINS49436.2020.9223274
View in Google Scholar
Lyons, R., & Viswanath-Natraj, G. (2020). What keeps stablecoins stable? National Bureau of Economic Research. http://dx.doi.org/10.3386/w27136
DOI: https://doi.org/10.3386/w27136
View in Google Scholar
Moura de Carvalho, R., Coelho Inácio, H., & Figueiredo Marques, R. P. (2022). Ledger to ledger: Off- and on-chain auditing of stablecoin. The International Journal of Digital Accounting Research, 22, 129–161. https://doi.org/10.4192/1577-8517-v22_5
DOI: https://doi.org/10.4192/1577-8517-v22_5
View in Google Scholar
Melo, F., Sugimoto, N., Bains, P., & Ismail, A. (2022). Regulating the crypto ecosystem. FinTech Notes, 2022(007), 1. https://doi.org/10.5089/9798400221361.063
DOI: https://doi.org/10.5089/9798400221361.063
View in Google Scholar
Mikhaylov, A. (2023). Understanding the risks associated with wallets, depository services, trading, lending, and borrowing in the crypto space. Journal of Infrastructure, Policy and Development, 7(3). https://doi.org/10.24294/jipd.v7i3.2223
DOI: https://doi.org/10.24294/jipd.v7i3.2223
View in Google Scholar
Muhetaer, M. (2022). Time for a simple linear policy rule for stablecoin: Tether policy rule. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4028049
DOI: https://doi.org/10.2139/ssrn.4028049
View in Google Scholar
Murialdo, M., & Belof, J. L. (2022). Can a stablecoin be collateralized by a fully decentralized, physical asset? Cryptoeconomic Systems. https://doi.org/10.21428/58320208.adf5637a
DOI: https://doi.org/10.21428/58320208.adf5637a
View in Google Scholar
Náñez Alonso, S. L. (2019). Activities and operations with cryptocurrencies and their taxation implications: The Spanish case. Laws, 8(3), 16. https://doi.org/10.3390/laws8030016
DOI: https://doi.org/10.3390/laws8030016
View in Google Scholar
Náñez Alonso, S. L., Jorge-Vázquez, J., Echarte Fernández, M. Á., & Reier Forradellas, R. F. (2021). Cryptocurrency mining from an economic and environmental perspective. Analysis of the most and least sustainable countries. Energies, 14(14), 4254. https://doi.org/10.3390/en14144254
DOI: https://doi.org/10.3390/en14144254
View in Google Scholar
Procházka, D. (2018). Accounting for bitcoin and other cryptocurrencies under IFRS: A comparison and assessment of competing models. The International Journal of Digital Accounting Research, 161–188. https://doi.org/10.4192/1577-8517-v18_7
DOI: https://doi.org/10.4192/1577-8517-v18_7
View in Google Scholar
Ramos, C. F. (2021). Manual de auditoría de estados financieros en NIIF. Ediciones Universidad Alberto Hurtado. http://dx.doi.org/10.2307/j.ctv21hrdwm
DOI: https://doi.org/10.2307/j.ctv21hrdwm
View in Google Scholar
Sanz-Bas, D., del Rosal, C., Náñez Alonso, S. L., & Echarte Fernández, M. Á. (2021). Cryptocurrencies and fraudulent transactions: Risks, practices, and legislation for their prevention in Europe and Spain. Laws, 10(3), 57. https://doi.org/10.3390/laws10030057
DOI: https://doi.org/10.3390/laws10030057
View in Google Scholar
Schultz, J. J., Jr., Bierstaker, J. L., & O’Donnell, E. (2010). Integrating business risk into auditor judgment about the risk of material misstatement: The influence of a strategic-systems-audit approach. Accounting, Organizations and Society, 35(2), 238–251. https://doi.org/10.1016/j.aos.2009.07.006
DOI: https://doi.org/10.1016/j.aos.2009.07.006
View in Google Scholar
Sempere, C. P., Parra, A. M., Sánchez, M. J. B., & Cediel, A. (2021). Guía de criptoactivos MiCA. ARANZADI / CIVITAS.
View in Google Scholar
Sidorenko, E. L. (2019). Stablecoin as a new financial instrument. In Lecture Notes in Networks and Systems (pp. 630–638). Springer International Publishing. http://dx.doi.org/10.1007/978-3-030-27015-5_75
DOI: https://doi.org/10.1007/978-3-030-27015-5_75
View in Google Scholar
Smith, S. S. (2023). The cryptoasset auditing and accounting landscape. In The Emerald Handbook on Cryptoassets: Investment Opportunities and Challenges (pp. 13–24). Emerald Publishing Limited. http://dx.doi.org/10.1108/978-1-80455-320-620221002
DOI: https://doi.org/10.1108/978-1-80455-320-620221002
View in Google Scholar
Sobański, K., Świder, W., Włosik, K., & Łęt, B. (2023). Is the market success of dominant stablecoins justified by their collateral and concentration risks? In Eurasian Studies in Business and Economics (pp. 235–251). Springer Nature Switzerland. http://dx.doi.org/10.1007/978-3-031-30061-5_15
DOI: https://doi.org/10.1007/978-3-031-30061-5_15
View in Google Scholar
Sood, K., Singh, S., Behl, A., Sindhwani, R., Kaur, S., & Pereira, V. (2023). Identification and prioritization of the risks in the mass adoption of artificial intelligence-driven stablecoins: The quest for optimal resource utilization. Resources Policy, 81, 103235. https://doi.org/10.1016/j.resourpol.2022.103235
DOI: https://doi.org/10.1016/j.resourpol.2022.103235
View in Google Scholar
Tache, M. (2020). The impact of IFRS adoption on audit fees and audit quality. Audit Financiar, 18(158),352–360. https://doi.org/10.20869/auditf/2020/158/010
DOI: https://doi.org/10.20869/AUDITF/2020/158/010
View in Google Scholar
Tarasova, T., Usatenko, O., Makurin, A., Ivanenko, V., & Cherchata, A. (2020). Accounting and features of mathematical modeling of the system to forecast cryptocurrency exchange rate. Accounting, 357–364. https://doi.org/10.5267/j.ac.2020.1.003
DOI: https://doi.org/10.5267/j.ac.2020.1.003
View in Google Scholar
Tether. (2023). https://tether.to/es/transparency/#reports
View in Google Scholar
Torchelli, V., & Símaro, G. (2021). Criptomonedas, su tratamiento en las normas internacionales de informacion financiera. Brazilian Journal of Business, 3(1), 886-903.
DOI: https://doi.org/10.34140/bjbv3n1-050
View in Google Scholar
Travkina, E. V., Fiapshev, A. B., & Belova, M. T. (2022). Stablecoin-Based digital trading and investment platforms and their potential in overcoming sanctions restrictions. Economies, 10(10), 246. https://doi.org/10.3390/economies10100246
DOI: https://doi.org/10.3390/economies10100246
View in Google Scholar
Vučinić, M. (2020). Fintech and financial stability potential influence of fintech on financial stability, risks and benefits. Journal of Central Banking Theory and Practice, 9(2), 43–66. https://doi.org/10.2478/jcbtp-2020-0013
DOI: https://doi.org/10.2478/jcbtp-2020-0013
View in Google Scholar
Vučinić, M., & Luburić, R. (2022). Fintech, risk-based thinking and cyber risk. Journal of Central Banking Theory and Practice, 11(2), 27–53. https://doi.org/10.2478/jcbtp-2022-0012
DOI: https://doi.org/10.2478/jcbtp-2022-0012
View in Google Scholar
Włosik, K., Łęt, B., Sobański, K., & Świder, W. (2022). Cross-sectional data on stablecoin characteristics. F1000Research, 11, 1188. https://doi.org/10.12688/f1000research.126298.1
DOI: https://doi.org/10.12688/f1000research.126298.1
View in Google Scholar
Xu, W., Xiao, Z., Dang, X., Yang, D., & Yang, X. (2014). Financial ratio selection for business failure prediction using soft set theory. Knowledge-Based Systems, 63, 59–67. https://doi.org/10.1016/j.knosys.2014.03.007
DOI: https://doi.org/10.1016/j.knosys.2014.03.007
View in Google Scholar
Yi, S., Xu, Z., & Wang, G.-J. (2018). Volatility connectedness in the cryptocurrency market: Is Bitcoin a dominant cryptocurrency? International Review of Financial Analysis, 60, 98–114. https://doi.org/10.1016/j.irfa.2018.08.012
DOI: https://doi.org/10.1016/j.irfa.2018.08.012
View in Google Scholar
Zaiceanu, A. M., Hlaciuc, E., & Lucan, A. N. C. (2015). Methods for risk identification and assessment in financial auditing. Procedia Economics and Finance, 32, 595–602. https://doi.org/10.1016/s2212-5671(15)01437-9
DOI: https://doi.org/10.1016/S2212-5671(15)01437-9
View in Google Scholar
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Javier Jorcano Fernández, Miguel Ángel Echarte Fernández, Sergio Luis Náñez Alonso
This work is licensed under a Creative Commons Attribution 4.0 International License.
