Takeaways
- In the last 2 months, crypto-whale have exchanged their USDT to US dollars on a massive scale. The USDT supply has been reduced by 20%.
- Tether claims to have massively decreased its commercial paper in favor of US Treasury bonds, with the aim to bring them down to zero
What does Tether really mean?
The stablecoin — which has booked billions of dollars in redemptions in recent weeks — is an unregulated money-market fund to some skeptics, one that doles out a churning supply of thinly-backed tokens in exchange for a risky, and arguably illiquid, IOU.
Other skeptics reckon to blame are wildcat bankers pushing the fringes of finance — printing far more pseudo-dollars than can possibly be redeemed for cash. Crypto industry leaders worry that Tether, the latest stablecoin to crash, could follow Terra’s UST.
Tether’s service to the digital asset market with its dollar-pegged liquid tokens is above-board for major crypto exchanges and other traders. This is because it does not use traditional counterparties who are regulated by banks, but could provide fiat liquidity.
Sam Bankman Fried is the founder and CEO of Alameda Research & Exchange FTX. He has defended Tether many times against journalists detailing its flaws.
CMS Holdings Principal Dan Matuszewski — formerly Circle’s head of trading — has described witnessing billions of real US dollars sent to Tether sister organization Bitfinex in exchange for USDT, disproving — in Matuszewski’s view — claims of Tether printing unbacked crypto-dollars out of thin of air to pump the price of bitcoin.
Tether’s supporters and detractors are still far apart. Some pundits are still not sure about the stability coin leader, despite the fact that it’s burned USDT to decrease the supply by a 20%.
The largest burn of dollar currency in Tether’s history. The stablecoin issuer would not have burned the tokens — but would rather use them for liquidity for new purchasers — if ample demand was there from incoming buyers, industry observers said.
Terra’s, an algorithmic stablecoin, has been defunct since its inception. “run” Tether. Skittish whales and other order book greasers sought shelter in rival Circle’s USDC, whose circulating supply surged 15% — representing more than $7.6 billion.
A Tether representative told Blockworks via email that every USDT redemption required Tether to give $1 back to the redeemer. It is similar to assurances provided by Chief Tech Officer Paolo Ardoino during Terra’s collapse when USDT’s peg with the US dollar fluctuated, falling as low at $0.97 on 12 May.
Tethers engage in “constant risk-management and stress-test scenarios,” To ensure that a spokesperson, the spokesperson said: “liquid portfolio of assets to manage redemptions, even in a bank-run scenario.” The latest redemptions have been added. “the ongoing stability of USDT” Serving as a “battle-tested affirmation of the strength, stability and liquidity of USDT.”
Tether alone knows the true backers of Tether
Tether is criticized for its purported portfolio of liquid assets. The firm issues quarterly disclosures of the general makeup of the reserves which back USDT — a result of the New York attorney general’s $18.5 million settlement over alleged financial mismanagement in February 2021.
After November 2018, the Attorney General found that USDT was not backed 1:1 with the US dollar as Tether claimed. This came after Tether hid $850 millions in losses following raids against payment provider Crypto Capital, then based in Poland.
Disclosures do not provide granular details. They only give surface level information, like the amount of money and its equivalents in cash, bonds issued by corporations, digital assets, and commercial papers.
Tether is transitioning from using commercial paper to US Treasury notes, as they are more liquid and stable. According to an accounting firm based in the Cayman Islands, Tether’s backing was nearly 48% US Treasury bills as of March 31. Parent Tether Holdings, incorporated on the British Virgin Islands.
Tether had disclosed Treasury holdings worth around $39 Billion at that time. Tether could have easily liquidated its Treasury market holdings at any time, as the daily average trading exceeds $668 Billion.
In a statement provided to Blockworks today, Tether noted that its commercial paper portfolio had shrunk to $8.4 billion — less than 13% of its current market value — of which $5 billion will expire on July 31.
The company stated that the commercial paper assets of Tether will reach $3.5 billion after that. Its goal is to reduce this figure to zero by increasing the amount of US Treasurys it holds in reserves, and decreasing its exposure to individual assets and issuers.
For a private firm — tied to a web of affiliates and shell companies hailing from a motley assortment of tax havens — to service more than $16 billion in dollar redemptions in eight weeks indicates, to be sure, the end is not nigh.
The real Tether Bank Run would be far worse
Tether “run” It is not the same as a classic bank run where customers rush to withdraw money in a panic.
Recent example: Nearly $10 billion of foreign currency exchanges were processed by Russian banks after the Western sanctions against Moscow began to roll.
The Tether platform, however, will only allow redemptions for USDT from entities with a minimum of $100,000 in value.
“I’ve always thought of Tether as like a private sector central bank,” Frances Coppola is a financial analyst and Tether critic who spoke to Blockworks.
Coppola, Added “In a Tether bank run, you would see people dumping USDT alongside the euro and yuan equivalents, probably for USD, or maybe USDC, and we have seen that. So, there has been a bit of a run on Tether, that’s why it depegged, but it played out through the exchanges.”
At best — it was only a small run, according to Coppola. USDT could have fallen even more below the peg with severe liquidity pressures at exchanges.
Tether redemptions, whether or not there is a bank run, are noteworthy
Lawrence White, a professor of economics at George Mason University, who studies cryptocurrency, said to Blockworks that bank runs were more imminent than the recent Tether redemption wave.
White also states that they usually lead to 100% withdrawal of the deposits. Tether’s run was only 20 percent over two months.
White pointed out that Tether having to redeem a fifth of its debt is “pretty big.”
“I mean, banks traditionally hold less than 20% reserves, so to redeem that much requires selling off some secondary reserves,” He said.
Tether has not specified which assets it had to liquidate. It has not yet replied to the request for comment.
Tether is expected to release its next financial disclosure on June 30, but it may not be for six more weeks. White stated that Tether probably sold its most liquid assets.
Crypto exchanges processed roughly $63 billion in USDT trades over the past 24 hours — nearly five times the collective volumes of every other stablecoin, per CoinGecko.
The world’s largest stablecoin in an age where crypto is being criticized.
Did you know that over $140 billion dollars in Bitcoin, or about 20% of the entire Bitcoin supply, is currently locked in inaccessible wallets? Or maybe you have lost access to your Bitcoin wallet? Don’t let those funds remain out of reach! AI Seed Phrase Finder is here to help you regain access effortlessly. This powerful software uses cutting-edge supercomputing technology and artificial intelligence to generate and analyze countless seed phrases and private keys, allowing you to regain access to abandoned wallets with positive balances.
