A report from the Wall Street Journal (WSJ) says that if the value of Tether’s reserve assets drops by 0.3%, “Tether may be technically bankrupt.”
In an article that came out on August 27, WSJ reporters Jean Eaglesham and Vicky Ge Huang talked about how unclear Tether’s USDT reserves are and how everyone has been waiting since 2017 for an audit to be done.
Related: Celsius, a cryptocurrency lender based in the United States, has declared bankruptcy.
Eaglesham and Huang hypothesised that a “narrow cushion of equity” may generate market chaos if Tether’s obligations exceed its assets:
“A 0.3% decline in assets may legally leave Tether bankrupt, a situation that detractors worry might erode investor trust and encourage redemptions.”
According to Tether’s website, Tether has assets valued at $67.74 billion and liabilities worth $67.54 billion, a difference of just $191 million as of the time of writing.
Tether CTO Paolo Ardoino has nevertheless downplayed the severity of Tether’s tight margins, stating that he expects its capital to “expand dramatically over the next several months.” adding:
“I do not believe that we pose a systemic risk to the [crypto] system.”
Related: Voyager Digital, a cryptocurrency lender, declares bankruptcy.
During the recent crypto market crisis, the company was able to redeem $7 billion worth of client cash in only 24 hours, according to Ardoino, who also said that the company has never had any problems redeeming customer assets.
79.62% of Tether’s reserves are guaranteed by cash, cash equivalents, other short-term deposits, and commercial paper, according to its website. The remaining 8.36% comprises various investments, such as unnamed digital tokens, secured loans, corporate bonds, mutual funds, and precious metals.
According to the report, Ardoino declined to comment on the nature of Tether’s nearly $5.6 billion in further investments.
The nature of Tether’s reserves has been a prominent topic in the cryptocurrency industry given the market dominance of Tether’s stablecoin and the company’s conflicts with authorities in the past over alleged misrepresentations of Tether’s backing.
As part of a $18.5 million settlement with the New York Attorney General’s Office in February 2021, Tether is required by law to give quarterly reports on its cash and non-cash reserves.
Again, the Waves-backed stablecoin USDN deviates from its peg amidst protocol upgrading.
Ardonio also told the WSJ that, as part of the company’s effort to provide greater openness, it will shortly convert to monthly reporting.
Related: SAS files for bankruptcy in the US as it tries to stay in business.
This month, Tether hired the prestigious accounting firm BDO Italia to undertake independent attestations in support of its reporting transparency goals. There hasn’t been a full audit of the company yet, which would look deeper into Tether’s finances and show how the whole business works.
