Tether Fails to Dispel Mystery on Stablecoin’s Crucial Reserves

(Bloomberg) --

The latest financial disclosure from Tether, which serves as a controversial foundation for much of the cryptocurrency market, didn’t shed any more light on where its reserves are held.

Tether Holdings Ltd. had assets totaling at least $69 billion as of Sept. 30, according to an assurance from Cayman Islands-based Moore Cayman. That includes $30.6 billion in commercial paper and certificates of deposit, $7.2 billion in cash, almost $1 billion in money market funds and $19 billion in Treasury bills.

The disclosure showed that Tether shifted about $1 billion in “reverse repo notes” holdings to money-market funds. However, they don’t specify in which countries the money funds are based. It also noted a reduction in the percentage of total assets held in commercial paper from the end of June. 

Bennett Tomlin, an independent researcher who has been critical of Tether and the affiliated crypto exchange Bitfinex, said today’s disclosure is “very similar to the last several attestations,” despite new language defining the credit rating companies referenced in the report. 

Tether is holding “a lot of commercial paper -- it’s not clear from where or how,” Tomlin said. Other unanswered questions include the type of digital assets in its holdings, the counterparties for its secured loans, and the use of yields from the holdings.

Tether had been at the center of speculation for years that the coin, used to facilitate trades in the crypto market, wasn’t backed one-to-one with dollars as claimed. In February, the companies agreed to provide quarterly reports to New York as part of a settlement over allegations that it hid the loss of funds and lied about reserves in prior years.

The disclosure in March that Tether held commercial paper triggered a guessing game in both the crypto and fixed income world as investors tried to figure out what securities were held beyond the amounts listed. Sherrod Brown, Democratic senator of Ohio who serves as the chairman of the Senate Banking Committee, has asked Tether and other major stablecoin issuers and exchanges for information on their risks. 

The latest assurance also listed $3.5 billion in secured loans to non-affiliated entities, $3.6 billion in corporate bonds, funds and precious metals, and $3.8 billion in other investments that include digital tokens.  

Tether has denied holding Evergrande debt but Stuart Hoegner, Tether’s lawyer, had declined to say whether Tether had other Chinese commercial paper in an interview with Bloomberg Businessweek. He said the vast majority of its commercial paper has high grades from credit ratings firms.

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