Tether stated earlier that their stablecoin was backed 1:1 by US dollars.
Getty Images | Justin Tallis | Afp
The contentious digital currency tether is now backed in part by “non-US” government bonds, according to the issuer of the stablecoin.
Stablecoins are a sort of cryptocurrency that is tied to the value of conventional assets such as national currencies. Tether, the business behind the same-named coin, aspires to monitor the US dollar.
Tether’s holdings of US Treasurys increased 13% to $39.2 billion in the first quarter, according to its latest “attestation” report.
Tether’s holdings of commercial paper, or short-term loans to businesses, decreased 17 percent to $20.1 billion during the quarter, and have dropped another 20% since April 1, the firm said. Because of the possible vulnerability of money markets, policymakers and economists are concerned about Tether’s commercial paper holdings.
Tether’s newest announcement is noteworthy since it is the first time the business has said that it is purchasing government debt from nations other than the United States in addition to Treasury bills.
Non-US bonds account for just around $286 million of Tether’s total holdings, which total more over $82 billion. However, the source of the monies and the governments that are providing them are unknown.
The government of the United States issues bonds that are usually regarded as safe and liquid. Debt from less developed countries is riskier since it has a larger chance of default.
Tether did not respond to a request for information on the non-US bonds it had purchased.
The “new attestation further emphasizes that Tether is completely supported and that the composition of its reserves is robust, conservative, and liquid,” according to Paolo Ardoino, Tether’s chief technical officer.
Tether is designed to be pegged to the dollar at all times. Last week, though, tether was briefly pulled below $1 on numerous platforms due to cryptocurrency volatility and fear over the collapse of terraUSD, a competitor stablecoin. TerraUSD, or UST for short, is a “algorithmic” stablecoin that attempts to maintain a $1 value using code rather than cash.
Tether is an important component of the cryptocurrency industry. It’s the world’s largest so-called stablecoin, with $74 billion in circulation, permitting daily exchanges of billions of dollars. During periods of high volatility in bitcoin and cryptocurrencies, investors often put their money into tether.
“This last week has shown Tether’s strength and tenacity,” Ardoino remarked. “Through many black swan occurrences and very tumultuous market circumstances, Tether has maintained its stability.”
Nonetheless, the amount of money streaming out of tether has created new concerns regarding its reserves. Tether has previously said that it was completely backed by US dollars. Tether has seen almost $7 billion in withdrawals in the last week alone.
After a 2021 deal with the New York attorney general, which accused Tether of misrepresenting about its stablecoin’s backing, the business began providing quarterly financials (Tether admitted no wrongdoing).
MHA Cayman, a little-known accounting company situated in the Cayman Islands, signed the papers.
Tether’s attestations haven’t persuaded some economists and investors, who are demanding a complete examination. According to the corporation, an audit is in the works.
Last week, Treasury Secretary Janet Yellen cautioned about the possibility of a “bank run,” in which investors fled stablecoins, perhaps spreading to other markets. The market for stablecoins has grown to $160 billion.
“I believe there is significant systemic danger at this moment in the stablecoin market,” John Griffin, a finance professor at the University of Texas, told CNBC. “There is a strong possibility that this may spread. And I believe most people are underestimating the danger.”
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Despite this, some of Tether’s early investors believe the digital token is adequately supported.
Brock Pierce, a co-founder of Tether, told CNBC, “Tether breaching its peg is an overstatement.” Price fluctuations in tether had occurred “hundreds and dozens of times,” he added.
Pierce, a former child actor, became interested in cryptocurrency in 2013 and has since launched a number of additional cryptocurrency businesses.
“Growing difficulties are a part of any startup,” he remarked.
Tether co-founder Reeve Collins claimed the company’s management had “everything to lose if they botch it up.” Ifinex, which also owns the bitcoin exchange Bitfinex, controls Tether.
Collins claims that few financial institutions could repay $7 billion in a couple of days.