{"id":21727,"date":"2018-07-26T15:55:37","date_gmt":"2018-07-26T15:55:37","guid":{"rendered":"http:\/\/ci027cfe7df00026c3"},"modified":"2018-07-26T15:55:37","modified_gmt":"2018-07-26T15:55:37","slug":"yes-stablecoins-can-secure-official-audits-major-firms","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/markets\/yes-stablecoins-can-secure-official-audits-major-firms","title":{"rendered":"Yes, Stablecoins Can Secure Official Audits from Major Firms"},"content":{"rendered":"
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\u201cWe have nothing to hide,\u201d says Tory Reiss<\/a>, VP of corporate development at TrustToken<\/a>. Like the market\u2019s most popular stablecoin, Tether, TrustToken’s TrueUSD<\/a> is fiat-collateralized. Under this model, each token (in theory) should be backed 1:1 with a corresponding dollar in a related bank account.<\/p>\n

This model may not play out in practice as it does in theory, however. In a recent interview with Bitcoin Magazine, <\/em>Reiss’s comment summarizes the bulk of his answer to our first question: How is TrueUSD different from Tether<\/a>?<\/p>\n

A Different Approach to Fiat-Backed Stability<\/h3>\n

Unlike Tether, which plays custodian, issuer and representative for all tokens and their congenital funds, Reiss explains that TrustToken has no control over the network\u2019s monetary flow.<\/p>\n

\u201cThere are a few pretty major components,\u201d he began. \u201cTo be honest, the biggest difference \u2014 when we started the businesses, we spent a lot of time architecting legal framework and also financial framework in terms of where the funds are held and how they\u2019re held, which was built around removing us, the company, from the flow of funds and protecting all the token holders in a legal manner from us being able to withdraw or access their funds.\u201d<\/p>\n

Instead, a combination of smart contracts, escrow accounts and fiduciary partners manage token supply and issuance. TrustToken\u2019s fiduciary partners include the Nevada-based Alliance Trust Company and Prime Trust (which also banks for the stablecoin Stronghold USD<\/a>), and these firms leverage smart contracts to mint and buy back tokens. Whenever a new user wants to mint fresh TrueUSD, they can wire money to one of these trusts, and once the funds are settled into the trust\u2019s bank accounts, the smart contract mints new tokens and issues them to the user. To redeem tokens, users burn them through a smart contract, and the respective trust then wires the user the corresponding funds.<\/p>\n

\u201cWe have a dashboard that we\u2019ve built for our fiduciary partners. Only after they\u2019ve received those funds and they\u2019ve settled for 24 hours can those partners go onto the dashboard and mark that transaction as settled to mint new tokens,\u201d Reiss explained. \u201cWe act on behalf of the token holder but, as a business, we can\u2019t access those funds.\u201d<\/p>\n

This process allows TrustToken to be as hands-off as possible while also providing them with the code-certain protections of smart contracts and the reliability of a central source of liquidity and asset management.<\/p>\n

The system is a more complex version of Tether\u2019s own with more working parts. In fact, Reiss suggested that his team viewed Tether as a sort of working model for what not to do, highlighting the need for clear legal and financial safety nets for its users.<\/p>\n

\u201cWe learned from Tether\u2019s mistakes in the sense that they put none of those legal protections in place. They hold all of their funds in an omnibus account where they can essentially do whatever they please with the money in that account. In our case, we could never preprint TrueUSD or have a disparity between funds in the accounts and tokens on the chain,\u201d he stated.<\/p>\n

Tether has come under fire for its printing\/issuance practices in the past. Critics have long speculated that Tether does not have parity between the dollars in its bank accounts and on-chain tokens. Researchers at the University of Texas, Austin, even released a report<\/a> in June of this year that seems to corroborate this suspicion, laying out evidence that suggests that Tether may have been used to artificially inflate bitcoin’s price during 2017\u2019s bull market. <\/p>\n

The smart contracts prevent TrustToken or its partners from preprinting TrueUSD without having dollars to back them. Funds have to hit the trust\u2019s bank account and sit for 24 hours before the smart contract will mint new tokens. <\/p>\n

Even if the smart contract didn\u2019t police token issuance, TrueUSD\u2019s accounts would, Reiss claimed. If at any point during their professional relationship the token\u2019s accountant found a discrepancy in supply and fiat reserves, the partnership would terminate.<\/p>\n

\u201cWe have one top-50 accounting partner (Cohen & Company) that is performing attestation. When they look at your books, they look at all of your transactions. And if your account isn\u2019t in line from day zero, they won\u2019t maintain an audit account.\u201d <\/p>\n

Reiss believes that, whether Tether won\u2019t submit to an audit for fear of this outcome or has had a relationship terminated because of a discrepancy, this is why the world\u2019s most popular stablecoin has no official audit on record.<\/p>\n

\u201cThat\u2019s most likely the case why Tether can\u2019t have a true audit partner \u2014 but in our case it\u2019s worked in our favor because we have nothing to hide.\u201d<\/p>\n

Tether has never submitted itself to an official audit by any certified accounting firm. The company claims that it\u2019s not out of defiance; it\u2019s simply because no firm is willing to take a risk working with a cryptocurrency company given the industry\u2019s stigmatized connection to money laundering, tax evasion and the dark web<\/a>. An audit by one of the U.S.\u2019s big four (Deloitte, Ernst & Young, PwC and KPMG), the team claims, is especially elusive. <\/p>\n

In lieu of an official audit, Tether has conducted a financial review<\/a> by Freeh Sporkin & Sullivan LLP, a law firm co-founded by former FBI Director Louis Freeh.<\/p>\n

The Other Side of the Coin<\/h3>\n

TrueUSD\u2019s operations tell another story. Not only does Cohen & Company currently conduct accounting for the currency, but Reiss indicated in our interview that TrustToken is in talks with two of the big four accounting firms to provide audits in the future. <\/p>\n

TrustToken also publishes regular attestations<\/a> from Cohen & Company on their Medium blog. When they strike a working relationship with one of the big four, the company plans to publish \u201clive attestations (via a public dashboard),\u201d Reiss claimed.<\/p>\n

Throughout the interview, Reiss repeatedly iterated that the company is operating in the open. Furthermore, because TrustToken is also playing ball with regulators, the company claims to have close-at-hand opportunities to expand its services.<\/p>\n

\u201cOur project is working entirely with U.S. securities laws and also those in Europe, Asia and South America. We\u2019re aiming to build a compliant system that works within the existing regulatory regime but which hopefully expands access,\u201d Reiss said.<\/p>\n

This expansion will look to bring the stablecoin model \u201cto European and Asian currencies this quarter,\u201d he continued, also revealing that the company is \u201caiming for a half dozen [exchange listings] in the next month or so.\u201d Currently, TrueUSD is offered<\/a> on Binance<\/a>, HBUS<\/a>, Bittrex <\/a>and Cryptopia, among others.<\/p>\n

TrustToken has earned funding from Andreessen Horowitz\u2019s a16z crypto<\/a>, Foundation Capital and Founders Fund, among others. The company has also pooled talent from the likes of Facebook, Airbnb, PayPal, Google and Goldman Sachs.<\/p>\n","protected":false},"excerpt":{"rendered":"

In an interview with Bitcoin Magazine, Tory Reiss, VP of corporate development at TrustToken, describes how TrueUSD is different from Tether.<\/p>\n","protected":false},"author":3468,"featured_media":21728,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[3500,2500,826,1547,653,804,811,3470],"class_list":{"0":"post-21727","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-a16z","9":"tag-audit","10":"tag-binance","11":"tag-bittrex","12":"tag-digital-assets","13":"tag-stablecoins","14":"tag-tether","15":"tag-trueusd"},"author_data":{"id":3468,"name":"Aaron Van Wirdum And Colin Harper","nicename":"aaron-van-wirdum-and-colin-harper","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/88b6c65a7515990786b1c04473e15469e5b0d0fffef947ed629a60854e1cb426?s=96&d=robohash&r=g"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/yes.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/21727","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3468"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=21727"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/21727\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/21728"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=21727"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=21727"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=21727"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}