An article about one of the digital currencies that companies can use as finance on the blockchain — Tether USDT.
So, does Tether have reserves ?
There has been a fair bit of controversy lately over the Tether stablecoin. The crypto has attracted attention and concern about how it’s backed, who is doing the backing, and whether it is sustainable. We will take a look at what is going on with Tether, which is especially important considering the depegging of 12 May, which saw its price drop to $0.95.
Although the coin has recovered to just under $1, it has not been at full parity since before the depegging. There was also a slight moment of concern on 18 June 2022, when it survived a DDOS attack by hackers.
What is Tether (USDT) ?
Tether (USDT) is what is called a stablecoin. This means it is designed to be pegged to the dollar, so it constantly maintains a value of $1. Every unit that is in existence is fully backed by traditional currency that is held in reserve.
Do not let this stability fool you into thinking that the coin is dull, though. So far this year, we have seen the number of people investing in the coin, and the overall market cap of the Tether cryptocurrency, explode.
The size of the Tether stablecoin went up by more than 250% in 2021, surging from a market cap of $21bn on 1 January to around $75bn on 6 October. The stablecoin has almost consistently managed to rank as the world’s third-largest cryptocurrency, behind Bitcoin and Ether. It is also the undisputed market leader when it comes to stablecoins, and is streets ahead of rivals such as USD Coin, Gemini Dollar and DAI.
Now that we have answered the question “What is USDT?” we will tell you how it works, or at least how it is supposed to work.
How USDT works ?
USDT is the biggest stablecoin there is. What makes it somewhat controversial is how it is backed.
People take their money and give it to Tether Holdings, which gives them USDT in return. If the trader is working with the US dollar, it should, in theory at least, be a straight swap of fiat dollars to crypto USDT. As for the company behind the coin, it holds on to the money it is sent in case someone wants to swap their stablecoin back for fiat. At least, that is what it is supposed to do.
The problem arises because there is no real consensus as to who backs USDT. This was not necessarily a problem in the eyes of crypto traders, though. As long as they were able to swap their fiat for the stablecoin, it did not matter. Often, the stablecoin was used to facilitate other crypto deals, so the matter of exchanging it back to a fiat currency was something of a moot point.
What changed things was the crypto boom of early 2021. As more and more cryptocurrencies became more and more valuable, and there was an ever-increasing number of people dealing with crypto, stablecoins became less of a curiosity and more of a useful tool. Tether got in on the action and, out of the $67.92bn USDT currently in circulation, the majority has been minted since the start of 2021.
Because the cryptocurrency is tied to the value of the dollar, that should mean that, somewhere, there is $67.92bn that exists purely to back the cryptocurrency. The problem is, no one is entirely sure whether this money exists and, if so, where it is and who is looking after it.
Does Tether have reserves? Yes. How much reserves does Tether have? Well, it says there is $67.92bn backing it up, but this has been the subject of some controversy.
$67.92bn is a lot of money. Theoretically, it should be somewhere, but no one knows exactly where. An investigation by Bloomberg drew a blank, although the financial news site was able to speak to the chairman of a bank that did business with Tether.
Jean Chalopin, of Bahamas-based Deltec Bank & Trust, defended Tether, saying: “There’s no agenda or plot. They are not Enron or Madoff. When there’s a problem, they fix it honorably.”
Chalopin, who first found fame as one of the creators of the 1980s cartoon Inspector Gadget, said the money behind USDT was real when his bank started doing business with the stablecoin in 2018, adding: “Frankly, the biggest thing was at the time, ‘The money doesn’t exist’. We knew the money exists! It was sitting here.”
However, Chalopin said that around $15bn of the Tether reserves was with Deltec at that time, adding: “I cannot speak about what I cannot know. I can only control what’s with us.”
Bloomberg also found that Tether had invested in several Chinese companies. The news service said: “If [Tether CFO Giancarlo] Devasini is taking enough risk to earn even a 1% return on Tether’s entire reserves, that would give him and his partners a $690m annual profit. But if those loans fail, even a small percentage of them, one Tether would become worth less than $1. Any investors holding Tethers would then have an incentive to redeem them; if others did it first, the money could dry up. The bank run would be on.”
Outside of discussion around the peg, it’s common that during periods of volatility people discuss (and critique Tether’s reserves).
Tether has released multiple assurance opinions which show the makeup of Tether’s reserves. The vast majority of USDT reserves are cash and common cash equivalents.
In Tether’s latest assurance opinion, Tether announced that over 55% of total USDT reserves are now US Treasuries and that commercial paper now makes up less than 29% of USDT’s backing.
While both commercial paper and treasury reserves are commonly held cash equivalents, US treasuries now make up a much larger percentage of Tether’s reserves.
However, Tether is committed to further reducing commercial paper as part of its reserves and increasing its holding of US Treasuries. This will be reflected in future assurance opinions in the coming months.
These announcements are part of Tether’s ongoing commitment to transparency and stability. Tether’s reserves are strong, conservative, and liquid. This is further demonstrated by Tether’s ability to honor $10 billion in redemption requests within days.
USDT has been the market leader in the rapidly growing stablecoin sector since its very inception. Tether has navigated multiple black swan events (including the Coronavirus crisis) and many cryptocurrency market drawdown over 50%. During these events, USDT has always maintained its peg and Tether has always processed every redemption request for its verified customers.
While markets may continue to be volatile, USDT will not be.
The Tether team, in the rare case of some kind of emergency (for example, an obvious theft of tokens), can block the stablecoins they created tokens at any wallet address on the blockchain. And the owner of the wallet will not be able to use them.
It should be added, the Tether company, available in different currencies. Tether supports US dollar (USD), euro (EUR), Mexican Peso (MXN), British Pound Sterling (GBP) and offshore Chinese yuan (CNH). Represented by ₮, Tether tokens are denoted as USD₮, EUR₮, MXN₮, GBP₮, CNH₮.
This article is written and courtesy of independent Financial Expert, Cryptography Educator and talented writer Linda Clore.