Tether claims USDT stablecoin is backed by non-US bonds

Tether previously claimed that its stablecoin was backed 1 to 1 by the US dollar.

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The stablecoin’s issuer said in a report that the controversial digital currency is now backed in part by “un-US” government bonds.

Stablecoins are a type of cryptocurrency pegged to the value of sovereign currencies and other traditional assets. Tether, the company behind the token of the same name, aims to track the US dollar.

In its latest so-called “attestation” report, Tether said its holdings of US Treasuries rose 13% to $39.2 billion in the first quarter.

The amount of commercial paper — short-term business loans — held by Tether fell 17% to $20.1 billion during the period, and has fallen another 20% since April 1, the company said. . Tether’s commercial paper holdings have been a concern for regulators and economists due to potential currency market exposure.

Tether’s latest disclosure is notable because it’s also the first time the company has revealed it’s buying government debt from countries other than the United States in addition to Treasuries.

At around $286 million, the amount of non-US bonds is only a small portion of the more than $82 billion in assets Tether claims to have. But the source of the funds and the governments issuing them are unclear.

Bonds issued by the US government are widely considered safe and highly liquid. The debt of other less developed economies is riskier, as it comes with a higher probability of default.

Tether was not immediately available to comment on the non-US bonds it purchased.

Paolo Ardoino, Tether’s Chief Technology Officer, said “the latest attestation further highlights that Tether is fully backed and its reserve composition is solid, conservative and liquid.”

Tether is supposed to maintain a 1:1 parity with the dollar at all times. But cryptocurrency volatility over the past week, coupled with panic over the collapse of competing stablecoin terraUSD, temporarily dragged below $1 on several exchanges. TerraUSD, or UST as it is known, is a so-called “algorithmic” stablecoin that attempted to maintain a value of $1 using code rather than cash.

Tether is a crucial part of the crypto market. With $74 billion in circulation, it is the largest so-called stablecoin in the world, facilitating billions of dollars in transactions every day. Investors often hold their money in place during times of heightened bitcoin and cryptocurrency volatility.

“Last week is a clear example of the strength and resilience of Tether,” Ardoino said. “Tether has maintained stability through multiple black swan events and highly volatile market conditions.”

Still, the amount of cash flowing out of the tether has raised new questions about the reserves behind it. Tether previously claimed to be backed only by US dollars. Investors withdrew over $7 billion from Tether in the past week alone.

Tether began publishing quarterly financials after a 2021 settlement with the New York Attorney General, who accused the company of lying about backing its stablecoin (Tether admitted no wrongdoing).

The documents are signed by MHA Cayman, a little-known accounting firm based in the Cayman Islands.

Some economists and investors are not convinced by Tether’s attestations and are calling for a full audit. The company says such an audit is underway.

Risk of contagion

Treasury Secretary Janet Yellen warned last week of the risk of a “bank run” scenario in which investors flee stablecoins, potentially causing contagion to other markets. Stablecoins are now a $160 billion market.

“The stablecoin market has grown so much that I think there is systemic risk at this point,” John Griffin, a finance professor at the University of Texas, told CNBC. “There is definitely a risk of it spreading. And I think people are probably underestimating that risk.”

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Nonetheless, some early backers of Tether say they believe the digital coin has enough backing.

“Tether breaking your ankle is an overstatement,” Tether co-founder Brock Pierce told CNBC. Tether price gaps have happened “dozens and dozens of times,” he said.

Pierce, a former child actor, turned to crypto in 2013 and founded many other businesses in the space.

“All startups have growth issues,” he said.

Reeve Collins, another Tether co-founder, said the company’s management had “everything to lose if it screwed up.” Tether is controlled by Ifinex, owner of the Bitfinex cryptocurrency exchange.

Few financial institutions could redeem more than $7 billion in a matter of days, Collins said.

LOOK: Terra shuts down blockchain, Tether loses $1

Garland K. Long