USDT
Market Cap: $39.8 billion as of 26-April-2022
Contract:
Collateralization Mechanism & Detail: USDT is collateralized by centrally controlled assets, including cash and debt instruments. Details as of 21-July-2021:
49% Commercial Paper and Certificates of Deposit
10% Cash and bank deposits
2% in Reserve repo notes
24% in US Treasury bills
4% corporate bonds
8% Funds and precious metals
3% other investments (including digital tokens)
History/Context + Risk Assessment: Tether, or USDT is the first fiat-backed stable coin, appearing under the name RealCoin in 2014. It functions almost identically as USDC- centrally controlled assets are held and provide the value for on-chain tokens. Furthering the parallels to USDC, Tether also claimed to be backed by cash or cash equivalents, and revealed in the summer of 2021 that it was mostly collateralized with debt instruments. Actual cash or bank deposits only account for 10% of Tether’s reserves, although the coin has recently increased the amount of US Treasury Bills it holds, which are considered extremely safe assets.
Nonetheless, USDT has been mired in controversy throughout it’s 7 year history. In 2017 a leak revealed that the group controlling the cryptocurrency exchange Bitfinex also controlled Tether. This was significant for a few reasons: first, a 2018 academic study showed that one Bitfinex user was using newly minted USDT to buy bitcoin when the price dropped. No allegations have been proven, but some have surmised that uncollateralized USDT was being created and deployed to support the price of bitcoin.
Second, in 2019 Bitfinex was investigated by the New York State attorney general for using Tether’s funds to cover the loss of $850 million dollars of commingled client and corporate funds. Bitfinex and Tether did not admit to wrongdoing in the settlement. However, they were fined $18 million dollars, the attorney general of New York indicated that the stablecoin was not backed at all for periods of time and Tether’s own lawyer admitted it was only 74% collateralized.
Despite significant improvements in transparency recently, Tether’s disclosures are still far from being on-par with traditional finance; Recently there has been speculation that most of the commercial paper Tether holds is Chinese. At the time of writing, China appears on the precipice of a debt crisis, with one of their largest developers, Evergrande, at serious risk of default. A worst-case scenario would have ramifications across Chinese debt markets (and likely globally), with the potential to damage USDT’s reserves.
While Tether has a number of skeletons in their closet, it is still not an indicator that the stablecoin has any real risk of collapse outside of a catastrophic event. It was last audited in June of 2021 by independent, Cayman based firm Moore Cayman declaring it fully collateralized. in Regulatory action is a much more clear and present danger; given both Tether and Bitfinex’s history of lies, half-truths and financial chicanery, and the SEC’s recent interest in the space it is very possible that they are forced to adapt to a new, regulated space.
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