Tether fortifies its reserves: Will it silence critics, mollify investors?
Categories: Crypto News US
Tether fortifies its reserves: Will it silence critics, mollify investors?
There is an old Arabic proverb: Dogs bark, but the caravan goes on. This can summarize the journey of Tether (USDT), the world's largest stablecoin. Tether has been embroiled in legal and financial wrangling through most of its short history.
There have been lawsuits over alleged market manipulation, allegations by the New York state attorney general that Tether lied about its reserves — fined the firm $18.5 million in 2021 — and this year, the United States Treasury Secretary. It was voiced by Janet Yellen on whether USDT can maintain its peg to the US dollar.
More recently, investment short sellers have been ramping up their bets against Tether, the Wall Street Journal reported on June 27. Embracing U.S. Treasury reserves?Tether's commercial paper reserves are expected to hit a new low of $3.5 billion by the end of July, down from $24.2 billion at the end of 2021. The company said its "goal is still to bring that down to zero." Many stablecoins such as Tether are stand-ins for the US dollar, and they must be backed 1:1 by liquid assets such as cash and US Treasury bills.
But, historically, more than half of USDT's reserves were in commercial paper, which is generally seen as less secure and more liquid than treasuries. Hence, the potential importance of commercial paper statements. For the same reason why commercial paper matters, this latest announcement in which the company announced that "U.S.
Mizrach said Treasuries now hold a larger percentage of Tether's reserves than commercial paper and certificate of deposit stake "can reassure investors". In its accountant's March 31 report "To the Directors and Management of Tether Holdings Limited," the U.S. Treasury bill reserves stood at $39.2 billion, nearly double the $20.1 billion from "commercial paper and certificates of deposit".
Meanwhile, investors have been betting against Tether for the past year, and according to the Wall Street Journal, the momentum has picked up since the collapse of TeraUSD, the algorithmic stablecoin, in May, with more hedge funds joining the shorts. Huh. USDT briefly lost its peg during the terra fiasco, falling to $0.95 before fully recovering. Big Four Audits: An Effective Solution?
Recently, John Reed Stark, an SEC attorney for 18 years, suggested on Twitter that a "fast/effective/guaranteed way" for Tether to suppress short sellers would be "to conduct an audit of a Big 4 account." Incorporating the firm that finds a rock-solid balance sheet."
A Big Four audit carries some weight with the SEC, and many large companies "want to be audited by a Big Four firm," because it makes their venture more attractive to investors and others. In the case of Tether reserves, “we don’t know what the asset is,” Stark said. “Tether is critical to maintaining any kind of trust in the cryptocurrency and blockchain sector,” McKenna said.“If Tether falls, I would venture that it is all over, but there are cries and lots of futile appeals to regulators and the courts.”