Tether Promised To Continue Decreasing Commercial Paper Holdings

Tether promised to continue decreasing commercial paper holdings which is a type of unsecured debt issued by companies and constitutes 30% of Tether’s reserves so let’s read more in today’s latest Tether news.

Tether is a stablecoin pegged to the US dollar but also by a slew of other holdings like bonds, commercial debt, and tokens. For years, stablecoin issuer Tether insisted that every one of the USDT coins was backed by US dollars which is how it held the peg to the fiat currency. When Tether started issuing transparency reports showing that the reserves constitute cash but also crypto tokens, bonds, and cash equivalents, the regulators and economists fretted that the stablecoin was not really stable especially because the company doesn’t go into a lot of detail about which companies’ debt it holds.

But Tether’s CTO Paolo Ardoino said that the company is already scaling back the reliance on commercial paper and will keep reducing the commercial paper on the reserves. Tether promised to continue decreasing the commercial paper holding and accoridng to the most recent breakdown, 30% of its reserves are held in commercial paper or certificates of deposit. This represents a reduction in both absolute and percentage terms from September 30, 2021, when up to $30.6 billion of the $69.2 billion in reserve was in commercial paper.

As of the end of 2021, $4.2 billion of Tether’s $78.7 billion in reserves was held in SU dollars and Tether now has a circulating supply of 82.6 billion USDT. The Federal Reserve Chairman Jerome Powell explained earlier why a stablecoin holding a large portion of the reserves in a debt instrument was problematic:

“Commercial paper are short-term overnight obligations from companies, and most of the time they’re investment grade, most of the time they’re very liquid, it’s all good.”

But that hasn’t been the case in the financial crisis today and he said that when the market just disappeared that’s when people want their money. Powell’s proposed solution was to regulate the stablecoins similarly to the market funds and as recently as 2019, Tether claimed that cash composed 100% of the reserves but ta pile of the cash doesn’t make a lot of sense for companies because it doesn’t generate a lot of itnerest though Tether does share its leadership structure with Bitfienx which has an obvious profit model.

Tether updated the website to read:

 “Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”

The same year, the New York Attorney General started probing the company for over $850 million in funds that Tether and Bitfinex’s founders that commingled and prompted a deeper dive into Tether’s finances that worked. In March 2021, the aftermath of the lawsuit ended with Tether publishing a breakdown showing that 65% of the reserves were in commercial paper.