Tether previously claimed that its stablecoin was backed 1-to-1 by US dollars.
Justin Tallis | Afp | Getty Images
The issuer of the stablecoin tether said in a report that the controversial digital currency is now partially backed by “non-US” government bonds.
Stablecoins are a type of cryptocurrency linked to the value of sovereign currencies and other traditional assets. Tether, the company behind the token of the same name, wants to follow the US dollar.
In its latest so-called “attestation” report, Tether said its holdings of US Treasuries rose 13% in the first quarter to $39.2 billion.
The amount of commercial paper — short-term loans to businesses — that Tether owns fell 17% to $20.1 billion over the period, falling another 20% since April 1, the company said. Tether’s commercial paper positions are a concern for regulators and economists due to the potential exposure of money markets.
Tether’s latest disclosure is notable, as it also marks the first time the company has revealed that it is buying government debt from countries outside the US in addition to government bonds.
At about $286 million, the amount of non-U.S. bonds is just a small fraction of the more than $82 billion in assets that Tether claims to own. But the source of the funds and the governments that issue them is not clear.
Bonds issued by the US government are generally considered safe and highly liquid. Debt from other less developed economies is riskier because it is more likely to default.
Tether was not immediately available for comment on which non-U.S. bonds it has purchased.
Paolo Ardoino, Tether’s chief technology officer, said the “latest statement further emphasizes that Tether is fully supported and that its reserves composition is strong, conservative and liquid.”
Tether aims to maintain a 1-to-1 peg to the dollar at all times. But volatility in cryptocurrencies last week, coupled with panic over the collapse of terraUSD, a competing stablecoin, temporarily dragged the chain 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 world’s largest so-called stablecoin, enabling billions of dollars in transactions every day. Investors often park their money in tether during times of heightened volatility in bitcoin and cryptocurrencies.
“This past week is a clear example of Tether’s strength and resilience,” Ardoino said. “Tether has maintained its stability through multiple black swan events and highly volatile market conditions.”
Still, the amount of cash flowing out of the chain has raised new questions about the reserves behind it. Tether previously claimed to be backed only by US dollars. In the past week alone, investors have withdrawn more than $7 billion from Tether.
Tether began releasing quarterly financial data after a 2021 settlement with the New York Attorney General, who accused the company of lying about its stablecoin backing (Tether admitted to committing no wrongdoing).
The documents were signed by MHA Cayman, a little-known accounting firm in the Cayman Islands.
Unconvinced by Tether’s statements, some economists and investors are calling for a full audit. The company says such an audit is underway.
Contagion risk
Treasury Secretary Janet Yellen last week warned of the risk of a “bank run” scenario in which investors flee the stablecoins, potentially causing a contagion to other markets. Stablecoins are now a $160 billion market.
“The stablecoin market has grown so much that I think there is some systemic risk right now,” John Griffin, a professor of finance at the University of Texas, told CNBC. “There’s definitely a risk that this could spread. And I think people probably underestimate that risk.”
Nevertheless, some early backers of Tether say they are confident that the digital currency is sufficiently supported.
“Tether breaking his pin is an exaggeration,” Brock Pierce, co-founder of Tether, told CNBC. Variations in the price of tether have happened “dozens and dozens of times,” he said.
A former child actor, Pierce turned to crypto in 2013 and has founded numerous other ventures in the space.
“All start-ups have growing pains,” he says.
Reeve Collins, another co-founder of Tether, said the company’s management has “everything to lose if they screw up”. Tether is operated by Ifinex, which owns the cryptocurrency exchange Bitfinex.
Not many financial institutions could repay more than $7 billion in days, Collins said.
WATCH: Terra stops blockchain, Tether loses $1 peg
#Tether #Claims #Stablecoin #Partially #Backed #NonUS #Treasuries
Comments
Post a Comment