Tether, the world’s largest stablecoin, cuts commercial paper to zero

Tether, the world’s largest stablecoin, has reduced its commercial paper holdings to zero, replacing them with US Treasury bills. according to a blog post. The popular US dollar-pegged cryptocurrency said the move is part of tether’s “ongoing efforts to increase transparency” and back its tokens with “the most secure reserves on the market,” in the last hope of ensuring investor protection. .

There are now around 68.4 billion tether tokens in circulation, according to CoinMarketCap data, compared to 2 billion three years ago. The cryptocurrency has a market capitalization of $68.4 billion.

“Tether has led the industry in transparency, publishing certifications every three months, constantly reviewing the composition of its reserves,” the statement continues.

Commercial paper is a form of short-term unsecured debt issued by companies and is considered less reliable than Treasury bills. In October, Tether’s CTO Paolo Ardoino tweeted that 58.1% of its assets were in Treasury bills, compared to 43.5% in June. It’s unclear where that percentage currently stands, but Ardoino wrote in a post Thursday that Tether was able to pay out $7 billion, or 10% of its reserves, in 48 hours.

“Ask your bank or other stablecoins if they can do that, in the same time frame of course,” he wrote.

Thursday’s statement went on to note that zeroing out its commercial paper holdings balance was also meant to be a step towards “greater transparency and trust, not just for Tether but for the entire stablecoin industry.”

The stablecoin corner of the cryptocurrency market has certainly had trust issues in the past year.

Last yeartether had to pay a multi-million dollar fine following a legal battle with the New York attorney general’s office over concerns related to the viability of its reserves, and in May, the collapse of terraUSD (UST), once one of the More popular. stablecoin projects cost investors tens of billions of dollars.

The fall of UST resulted in a downward domino effect throughout the broader crypto ecosystem. Part of the fallout involved Tether temporarily losing its peg to the dollar and falling as low as 95 cents.

But long before UST’s dramatic implosion, Tether, the company behind the stablecoin of the same name, was facing a serious regulatory backlash over its reserves.

Most stablecoins are backed by fiat reserves, the idea being that they have enough collateral in case users decide to withdraw their funds. (UST was among a new generation of “algorithmic” stablecoins that attempt to base their dollar peg on code.)

Previously, Tether claimed that all of its tokens were backed one-for-one by dollars stored in a bank. However, after a settlement with the New York attorney general, the company revealed that it relied on a variety of other assets, including commercial paper, to back its token.

In April, Ardoino told CNBC that the company was well equipped to deal with massive redemptions, but that New York Attorney General Letitia James’s office previously alleged that Tether sometimes had no reserves to support the dollar peg of its cryptocurrency. He said that since mid-2017 the company had no access to banking and misled customers about liquidity problems.

“Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie,” he added. Tether said in a statement on its website that, contrary to speculation, “after two and a half years Tether was never found to ever issue unbacked tethers, or to manipulate cryptocurrency prices.”

Critics have also raised fears that tether tokens were used to manipulate bitcoin pricesa claim Tether has repeatedly denied.

While not yet large enough to cause disruption to US money markets, Tether could eventually reach a size where its holding of US Treasuries is “really scary”, said Carol Alexander, a finance professor at the University of Sussex.

“Suppose you go ahead and instead of $80 billion, we have $200 billion, and most of it is liquid US government securities,” he said. “So a drop in Tether would have a substantial impact on the US money markets and would just throw the whole world into recession.”

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