A Bloomberg article sums up the deep, industry-threatening questions about the $71 billion stablecoin issuer clearly — and worryingly.
If you’ve been involved in the crypto world for even a little while, you'll know about stablecoin issuer Tether: Give them a dollar, they’ll give you a Tether coin worth $1.
That USDT makes it far easier to buy and sell cryptocurrencies than, say, trading one Bitcoin for 15.0398615 Ether directly.
Tether puts all those dollars in a bank, backing the USDT cryptocurrency one to one, keeping their price stable at $1. At least, that’s the idea.
If you’ve been involved in the crypto world for more than a little while, you'll know about the many questions about stablecoin issuer Tether. Summed up, they amount to: Does Tether really have the $71 billion in a bank somewhere backing the 71 billion USDT they’ve issued?
It’s summarized in rather more detail, and quite well, in an article posted
on Bloomberg Businessweek today by Zeke Faux. It begins by describing a July meeting called by Treasury Secretary Janet Yellen in July with top officials including the heads of the Securities and Exchange Commission and Federal Reserve to discuss the problem. The reason, Faux said, was:
“Tether had gotten so large that it threatened to put the U.S. financial system at risk. It was as if a playground snowball fight had escalated so wildly that the Joint Chiefs of Staff were being called in to avert a nuclear war.”
Much of the article goes through familiar points: Tether is a tiny and utterly unregulated company with an unclear Caribbean headquarters, leadership that is unorthodox, to say the least, and a long history of refusing to allow a proper outside audit of that stash of cash.
After an only semi-related lawsuit by New York’s Attorney General, it did admit that it holds not just cash but a fair chunk of “cash equivalents” like T-Bills and “commercial paper” as well as some 25% in more risky investments like Chinese corporate debt. (Evergrande, anyone?)
Tether’s attorney says the concerns are unfounded.
(In unrelated news, the U.S. FDIC is reportedly considering insuring stablecoin bank deposits
up to $250,000 just like it does cash accounts. However, it protects against bank failures, not stablecoin failures.)
Where the piece gets worrying is when it looks at that breakout — provided by an accounting firm — which included “a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper — short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group.”
A team “canvassed Wall Street traders” to see if anyone knew about Tether making those buys. No one had, and one insider told Faux:
“It’s a small market with a lot of people who know each other ... If there were a new entrant, it would be usually very obvious.”
It’s also loaned billions to crypto companies. More problematic, Faux said, is that no one in crypto seems to care much.
As the article notes, CNBC host Jim Cramer once addressed the Tether question by advising viewers to sell their crypto:
“If Tether collapsed, well then, it’s going to gut the whole crypto ecosystem.”