Tether previously claimed that its stablecoin was backed by 1 to 1 USD.
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The stablecoin issuer said in a report that the controversial digital currency is backed in part by “non-US” government bonds.
A stablecoin is a type of cryptocurrency linked to the value of sovereign coins and other traditional assets. Tether, the company behind the token of the same name, aims to track the US dollar.
In the most recent report called “The Endorsement,” Tether said its holdings of US Treasurys rose 13% to $39.2 billion in the first quarter.
The volume of commercial paper — short-term loans to businesses — owned by Tether fell 17% to $20.1 billion in the period, the company said, and has fallen another 20% since April 1. Tether’s holdings of commercial paper have been a source of concern for regulators and economists due to the potential exposure to money markets.
The recent disclosure of Tether is noteworthy as it is also the first time the company has disclosed that it has purchased government debt from countries outside the US in addition to Treasuries.
At about $286 million, the amount of non-US bonds is just a small part of the more than $82 billion in assets that Tether claims to own. But the source of the money and the governments that issued it is unclear.
Bonds issued by the US government are widely regarded as safe and highly liquid. Debt from other less developed economies is more risky, as it comes with a higher probability of default.
Tether was not immediately available for comment on the non-US bonds it had purchased.
“The recent testimony further highlights that Tether is fully backed and its reserve composition is robust, conservative, and liquid,” said Paolo Arduino, Tether’s chief technology officer.
Tether aims to maintain a 1-to-1 peg to the dollar at all times. But last week’s volatility in cryptocurrency, along with the panic over the collapse of terraUSD, a rival stablecoin, temporarily pulled the rope below $1 on several exchanges. TerraUSD, or UST as it is known, is an “algorithmic” stablecoin that attempted to maintain the value of $1 using code instead of cash.
Tether is an important part of the crypto market. With a circulation of $74 billion, it is the world’s largest stablecoin, facilitating billions of dollars worth of transactions every day. Investors often put their money into the cables during times of increased volatility in bitcoin and cryptocurrencies.
“Last week is a clear example of the power and resilience of tether,” Arduino said. “Tether has been kept stable by multiple black swan events and highly volatile market conditions.”
However, the amount of cash flow from the rope raised new questions about the reserves behind it. Tether previously claimed that it is backed only by US dollars. Investors pulled over $7 billion from Tether in the last week alone.
Tether has begun releasing quarterly financial statements following a 2021 settlement with the New York attorney general, which accused the company of lying about backing its stablecoin (Tether has admitted no wrongdoing).
The documents were signed by MHA Cayman, a little-known accounting firm based in the Cayman Islands.
Some economists and investors are unconvinced by Tether certifications and are calling for a full audit. The company says such scrutiny is on the way.
Last week, Treasury Secretary Janet Yellen warned of the risks of a “bank run” scenario where investors flee stablecoins, which could cause 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 at this point,” John Griffin, a professor of finance at the University of Texas, told CNBC. “There is definitely a risk that this will spread. And I think people might be underestimating that risk.”
However, some early backers of Tether say they are confident that the digital currency is sufficiently backed.
“Breaking the rope tie is overkill,” Tether co-founder Brooke Pierce told CNBC. He said deviations in the rope’s price occurred “dozens and dozens of times.”
Pierce, a former child actor, turned to cryptocurrency in 2013 and founded several other projects in this field.
“All startups face the challenges of growing pains,” he said.
Rev Collins, another co-founder of Tether, said the company’s management “has everything to lose if they screw it up.” Tether is controlled by Ifinex, which owns crypto exchange Bitfinex.
Collins said that not many financial institutions can recover more than $7 billion in a matter of days.
Watch: Terra Blockchain Stops, Tether Loses $1