More On: Tether
Over $7 billion has been taken out of Tether, prompting further concerns about the stablecoin's support
Tether’s circulating supply has slipped from about $83 billion a week ago to less than $76 billion on Tuesday, according to data from CoinGecko.
Investors have pulled more than $7 billion out of tether after it briefly lost its dollar peg, raising new concerns about the reserves that support the world's largest stablecoin.
According to CoinGecko data, Tether's circulating supply has dropped from around $83 billion a week ago to less than $76 billion on Tuesday.
The so-called stablecoin is supposed to be worth $1 at all times. However, amid concern at the collapse of a competitor coin called terraUSD, its price fell as low as 95 cents on Thursday.
Most stablecoins are backed by currency reserves, with the intention of providing sufficient collateral in the event that users elect to withdraw their funds. However, terraUSD, or UST, is part of a new breed of "algorithmic" stablecoins that try to base their dollar peg on code. Investors' skepticism of cryptocurrency has put that to the test recently.
Tether formerly claimed that all of its tokens were backed one-to-one by dollars held in a bank. Following a settlement with the New York attorney general, the corporation revealed that it supported its token with a variety of other assets, including commercial paper, a type of short-term, unsecured debt issued by businesses.
The situation has brought the issue of reserves behind tether to the forefront once more. Cash accounted for about $4.2 billion of Tether's assets when it was last declared. The great majority of its holdings — $34.5 billion — were unnamed Treasury notes with a maturity of less than three months, while commercial paper accounted for $24.2 billion.
Tether's quarterly "attestations" are signed by MHA Cayman, a Cayman Islands-based company with only three workers, according to its LinkedIn page.
Tether has been subjected to several demands for a complete audit of its reserves. The business informed CNBC in July 2021 that it would create one in "months." It still hasn't done so.
Tether did not respond to CNBC's request for comment when contacted for this piece.
Tether's chief technology officer, Paolo Ardoino, responded to a Twitter user who demanded a complete audit by saying the token was "totally backed" and had redeemed $7 billion in the previous 48 hours.
"If the market wishes, we can keep going; we have all the liquidity to manage large redemptions and pay everyone 1-to-1," he said.
@paoloardoino— Ki Young Ju (@ki_young_ju) May 17, 2022
With all due respect sir, when $USDT audit report?
We're scared due to the $UST collapse and the market wants spot #Bitcoin ETFs.
Regulators, institutions, and crypto investors are waiting for your response on whether $75B worth of USDT is fully-backed or not.
In a further tweet, Ardoino said Tether is still working on an audit. “Hopefully regulators will push more auditing firms to be more crypto friendly,” he said.
We have redeemed 7B in 48h, without the blink of an eye. How many institutions can do the same?— Paolo Ardoino (@paoloardoino) May 17, 2022
We can keep going if the market wants, we have all the liquidity to handle big redemptions and pay all 1-to-1.
Yes, Tether is fully backed.
Regulators on both sides of the Atlantic have been startled by the destabilization of tokens whose sole job is to maintain a consistent price. Last Monday, US Treasury Secretary Janet Yellen warned of the dangers to financial stability if stablecoins are allowed to develop unchecked, and urged Congress to pass regulation by the end of 2022.
The current upheaval in crypto markets should serve as a "wake-up call" for global regulators, according to Bank of France Governor Francois Villeroy de Galhau. If cryptocurrency is left uncontrolled, Villeroy believes it would destabilize the banking system, particularly stablecoins, which he claims are "misnamed."
Meanwhile, European Central Bank Executive Board Member Fabio Panetta stated that stablecoins such as tether are "susceptible to runs," alluding to widespread exodus of customers from a financial institution. With new guidelines known as the Markets in Crypto-assets Regulation, or MiCA for short, the European Union plans to bring stablecoins under rigorous regulatory monitoring.
Crypto exchanges, not ordinary investors, are taking billions of dollars out of Tether in wholesale trades, according to Frances Coppola, an independent economist. Tether has a $100,000 minimum withdrawal to convert tethers to dollars, according to the company's website.
"The exchanges are its customers," Coppola added. "Traders, dabblers, and small investors buy tokens from exchanges."
Tether is an important aspect of the cryptocurrency industry, supporting daily trades worth billions of dollars. During periods of high cryptocurrency volatility, investors frequently park their funds in the token.
Tether will have "minimal difficulty" selling down its Treasury assets, according to Monsur Hussain, head of financial institutions research at Fitch Ratings.
However, the source of those assets is unknown. Tether's technology head refused to reveal specifics on its Treasury holdings in a recent interview with the Financial Times, stating the company "doesn't want to give our secret sauce."
Anxiety surrounding tether appears to have fuelled demand for alternative currencies such as Circle's USDC and Binance's BUSD, whose market values have grown by about 8% and 4% in the last week, respectively. This is because these coins are considered "safer" than tether, according to experts.
While not yet substantial enough to destabilize US money markets, Carol Alexander, a finance professor at Sussex University, believes Tether's ownership of US Treasurys will become "very worrisome" in the future.
"Suppose instead of $80 billion, we have $200 billion, and the majority of it is in liquid US government securities," she explained. "Then a tether meltdown would have a significant influence on US money markets, effectively tipping the entire world into recession."
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