- Wall Street Journal reporters Jean Eaglesham and Vicky Ge Huang published a story over the weekend warning of the murky nature of Tether reserves, the crypto firm behind USDT.
- USDT is the third cryptocurrency with the largest market capitalization and a failure in its parity would irreversibly affect the entire crypto ecosystem.
- A 0.3% drop in the value of its reserve assets could lead to “Tether being technically insolvent”, however Tether is currently solvent because its assets are greater than its liabilities, which are made up precisely of the USDT distributed in the market. .
2022 has been a particularly difficult year for the crypto market, but especially for the companies that inhabit the sector. There is a feeling of insecurity and uncertainty among investors that can be a chaotic factor. Nothing instills more fear than stories based on true events like the collapse of Terra.
Tether’s solvency has always been a topic in the crypto community. In fact, an audit of the company has been promised since 2017 and, according to Jean Eaglesham and Vicky Ge Huang, journalists for the Wall Street Journal, this has not yet been fulfilled.
It is necessary to keep in mind that USDT is the third cryptocurrency with the largest market capitalization and, consequently, a failure in its parity would irreversibly affect the entire crypto ecosystem.
Following the collapse of Terra, Tether appears to have committed to making the reserves backing its USDT stablecoin much more transparent and has since published two audited reports of its quarterly holdings, one in May and one in August.
However, this does not seem to be enough because according to a Article published over the weekend by Eaglesham and Ge Huang, warn about the murky nature of Tether reserves.
On the brink of insolvency
In its mid-August Tether certification by BDO Italia, the firm noted its 58% quarterly decline in its commercial paper holdings. This means that the assets backing USDT would have decreased by 19% in a quarter, and although it proved to be solvent since the assets were greater than the liabilities, the gap is 0.3%.
It is for this reason that WSJ journalists note that a 0.3% drop in the value of its reserve assets could lead to “Tether being technically insolvent”.
“A 0.3% drop in assets could make Tether technically insolvent, a development skeptics warn could dampen investor confidence and spur a surge in redemptions.“, they pointed out.
According to journalists Eaglesham and Huang, the 0.3% gap between Tether’s assets and liabilities represents a “thin cushion” that could lead to market chaos.
Tether is currently solvent
However, possibility cannot be confused with reality. Tether is currently solvent because its assets are greater than its liabilities, which are made up precisely of the USDT distributed in the market.
At this time, according to official website of Tether, the company has assets valued at $67.7 billion US dollars and liabilities valued at $67.5 billion; being a difference of approximately 190 million dollars. And, as long as this is the case, Tether is solvent and therefore UDST is backed.
Still, it is a wake-up call to Tether that the gap is relatively small. Tether can be expected to continue publishing audited reports of its holdings in the coming months.
You might be interested in: