Tether Holdings Limited, which has operated below the regulatory radar for the last half-decade, has released its quarterly assurance opinion report. The report shows a dramatic decrease in its cash and cash equivalents, commercial paper holdings, and reserves exceeding its liabilities, which raises questions – why?
New York’s Attorney General requires Tether Holdings Limited to report its reserves on a quarterly basis since the company paid an $18.5 million fine in February 2021. As part of the settlement, the largest stablecoin issuer reported yesterday a total of $24.2 billion in commercial paper assets classified as “Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper.” Cash equivalents are investments that mature within three months or less.
The attestation supervised by Cayman Islands-based Accountants MHA Cayman stated that it had reduced its commercial paper holdings by one-fifth between September and December last year, dropping from around $30.5 billion to $24.16 billion. Moreover, it decreased its cash assets from $7.2 billion to $4.2 billion in the last quarter. To maintain its reserve, the issuance company allocated most of its reserves to Treasury bills, almost doubling its assets in short-term government securities from $19.4 billion to $34.5 billion.
Tether took to Twitter to share the news, proudly announcing that its consolidated assets exceed its consolidated liabilities. However, the difference is relatively small, with assets totaling $78.67 billion and liabilities around $78.53 billion. Moreover, the latest figures show that less than 3% of Tether reserves are held in cash.
The latest attestation might help put to rest many years of skepticism about Tether, crypto investors’ USD stablecoin of choice. Tether’s tussle with regulators started in 2017 when Tether Holdings Limited was alleged to have misrepresented the specific amount of fiat backing Tether ($USDT.X). In short, they misrepresented their cash holdings against the amount of Tether issued – which could be bad.
Tether’s website revealed in June 2021 that its cash only makes up a small percentage of its reserves. Reserves were mostly invested in commercial paper, secured loans, and corporate bonds and metals. These assets are market-sensitive. Regulators had a problem with that because since these assets move, it makes for a “stablecoin,” which is not so stable – and has a great propensity to drop below its $1 peg.
Tether is also facing a major class-action lawsuit accusing it of contributing to “the largest bubble in human history.” For many people, Tether is a joke because there is no way to have cash backing for the 79 billion $USDT.X currently in circulation. For comparison, retail giant Amazon has $73 billion cash on hand.
USDT critics claim that it’s a way for insiders to artificially inflate the value of Bitcoin. It’s noteworthy that more than 75% of Bitcoin trading is done in $USDT.X and the third-most widely held coin by value facilitates transactions between various cryptocurrencies.
Tether Holdings Limited’s latest figures do not indicate it is 100% funded by cash reserves. It will be interesting to see whether or not the report alleviates the regulator’s concern about Tether’s backing.