Tether and how it maintained ‘stability through multiple black swan events’

The market has serious concerns with regards to the so-called “stability” of much-talked-about stablecoins. With the market still trying to find a balance post the Terra debacle, Tether published a report on the company’s financials. Tether, the largest stablecoin by market cap, also lost its peg after dropping to $0.95. This raised fears of another sell-off, which have since been contained after it recovered most of its position.

Stablecoins, in general, have come under immense pressure after Terra’s implosion earlier in May. Regulators have also criticized the use of stablecoins with the Federal Reserve calling out stablecoins in its Financial Stability Report.

“The increasing use of stablecoins to meet margin requirements in leveraged crypto trades may heighten crypto trades,” it said.

Of financials and more…

Tether recently submitted the “Consolidated Reserves Report” which includes the financials of Tether Holdings Limited. The report also covers information related to the company’s subsidiaries in the British Virgin Islands and Hong Kong.

The group’s total assets amount to $82.4 billion of which 86% are in cash and cash equivalents. Tether has $4 billion in corporate bonds, $5 billion in other investments, including crypto assets and a further $3 billion in secured loans. In total, Tether holds 52% US Treasury bonds, 37% commercial paper, with the remainder in cash and money market funds.

This marked a near 17% decrease in its Commercial Paper from $24 billion to $20 billion in the first quarter of 2022 alone. It will also show a deduction of further 20% in the Q2 of 2022 report.

Tether’s CTO and his two cents

Tether’s Chief Technical Officer Paolo Ardoino also commented on Tether’s performance. He said,

“Tether has maintained its stability through multiple black swan events and highly volatile market conditions and, even in its darkest days, Tether has never once failed to honor a redemption request from any of its verified customers. This latest attestation further highlights that Tether is fully backed and that the composition of its reserves is strong, conservative and liquid.”

The report added a disclaimer that asset valuations are based on “normal trading conditions.”

“The valuation of the assets of the Group have been based upon normal trading conditions and do not reflect an unexpected large-scale sale of assets, or the case of any key custodians or counter-parties defaulting or experiencing substantial illiquidity, which may result in materially different or delayed realizable values. No provision for expected credit losses was identified by management at the financial reporting date.”