A Wall Street Journal (WSJ) article has claimed that Tether’s balance sheet is in a position that even a 0.3% drop in the value of its reserve assets could “render Tether technically insolvent.”.
In a report on Saturday, WSJ reporters Jean Eaglesham and Vicky Ge Huang focused on the murky nature of Tether (USDT) reserves and their long-awaited audit that has been underway since 2017.
Eaglesham and Huang suggested that such a “thin capital floor” could cause market chaos, if Tether’s liabilities outweighed its assets.:
“A 0.3% drop in assets could make Tether technically insolvent, a development skeptics warn could dampen investor confidence and spur higher redemptions.”
At the time of writing this article, Tether has assets worth $67.74 billion and liabilities worth $67.54 billion, a difference of just $191 million, according to the Tether website..
However, Tether’s chief technology officer, Paolo Ardoino has downplayed the seriousness of Tether’s tight margins, telling the publication that he expects his capital to “grow significantly in the coming months.”adding:
“I don’t think we are the systemic risk in the system [de criptomonedas].”
Ardoino also pointed out that the firm has had no trouble redeeming client funds, managing to redeem $7 billion in just 24 hours during a recent cryptocurrency market crash.
Tether’s website currently indicates that 79.62% of its reserves are backed by cash, cash equivalents, other short-term deposits, and commercial paper.. The remainder consists of 8.36% other investments including unspecified digital tokens, 6.77% secured loans, and 5.25% corporate bonds, funds, and precious metals.
Nevertheless, Ardoino declined to comment on what the roughly $5.6 billion of other Tether investments consist of, according to the report..
The nature of Tether reserves has been a key and long-running narrative in the cryptocurrency space.given the market dominance of its stablecoin and the firm’s dealings with regulators over alleged misrepresentations of Tether’s backing in the past.
As part of an $18.5 million settlement with the New York Attorney General’s Office in February 2021, Tether is legally required to publish quarterly reports breaking down the specific composition of its cash and non-cash reserves..
Ardonio also told the WSJ that it will soon switch to monthly reporting as part of the company’s push to provide more transparency..
Earlier this month, Tether engaged major accounting firm BDO Italia to assist its transparency reporting goals by conducting independent attestation. Nevertheless, There has yet to be a full audit of the company delving into Tether’s finances and providing the full scope of its operations.
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