Newly released documents from the New York Attorney General’s office have revealed controversial details about Tether Holdings Ltd., the issuer of the USDT stablecoin. The documents show that Tether once held securities issued by Chinese companies, a fact that had been speculated for years. This revelation raises concerns about the quality and transparency of the assets backing USDT, which is the largest stablecoin in the world with a circulation of around $83.5 billion.
The documents also highlight Tether’s exposure to Chinese commercial paper and short-term loans to Chinese companies, as well as a sizable loan to the crypto platform Celsius Network. Tether had previously denied having such exposure but did not provide clarity on its holdings of Chinese companies or issuers.
Tether’s exposure to Chinese commercial paper was mostly in the banking sector and not in the rumored Chinese estate developer Evergrande. Although all Chinese paper held was liquid and issued by major and well-known worldwide commercial paper issuers. All of these issuers were stable, and most of this paper was and is held in conservative portfolios by some of the world’s largest investment managers. The commercial paper issued by a Chinese bank was rated A1 or higher.
It’s also worth mentioning that Tether’s commercial paper holdings were cut to zero last year. Tether lost no money on any commercial paper, including Chinese commercial paper.
The scrutiny of Tether’s reserves is significant due to the crucial role USDT plays in the cryptocurrency market. Traders rely on USDT to move funds in and out of crypto markets, facilitate exchanges, and seek stability during times of volatility. If Tether fails to redeem USDT for dollars, it could shake confidence in the entire cryptocurrency ecosystem.
Tether reached a settlement with the NY Attorney General’s office in February 2021 over allegations of lying about its reserves and concealing losses. As part of the settlement, Tether provided documents, including letters, bank accounts, reserve holdings, and wallet addresses. These documents, which detail Tether’s assets as of March 2021, also outline the company’s procedures for detecting money laundering.
The release of these documents, following a freedom of information request, sheds light on Tether’s banking relationships, lending practices, and investments. Tether had significant loans in USDT to third parties, totaling $5.1 billion, with collateral in the form of digital assets or securities. The company also maintained accounts at several Bahamian banks and held reserve assets in gold storage, in addition to funds and deposits in Bitcoin on the Bitfinex exchange.
Overall, the controversial nature of Tether’s holdings and the concerns surrounding its reserves continue to raise questions about the stability and reliability of USDT as a stablecoin.
Also Read: Tether’s Transparent Response to CoinDesk’s FOIL Request
