Even a 0.3% Fall in the Value of Tether's Reserve Assets Could Render the Company Technically Insolvent - WSJ


An article in the Wall Street Journal (WSJ) argues that Tether's balance sheet is in such a state that even a 0.3% drop in the value of reserve assets could "render the company technically insolvent."

In their August 27 report, WSJ journalists Jean Eaglesham and Vicki Ge Huang focused on the cloudy nature of USDT Tether reserves and the audit that has been ongoing since 2017.

Eaglesham and Huang suggested that if Tether's liabilities exceeded its assets, then it could cause chaos in the market:

"A 0.3% fall in assets could render Tether technically insolvent — a development that skeptics warn could reduce investor confidence and spur an increase in redemptions..

At the time of writing, Tether has assets of $67.74 billion and liabilities of $67.54 billion, making a difference of $191 million, according to the Tether website.

Tether’s CTO Paolo Ardoino explained to the publication that he expects the capital to “grow significantly over the next few months."

Ardoino also noted that the company had no problem returning customer funds and was able to pay off $7 billion in just 24 hours during the recent cryptocurrency market crash.

Tether's website states that 79.62% of its reserves are backed by cash, cash equivalents, other short-term deposits and commercial paper. The rest comprises 8.36% in other investments, including unspecified digital tokens, 6.77% in secured loans and 5.25% in corporate bonds, funds and precious metals.

However, Ardoino declined to comment on what Tether's other investments, worth about $5.6 billion, the report says.

The nature of Tether holdings has long been one of the key issues in the cryptocurrency space, given the dominant position of USDT on the market and the company’s dealings with regulators over alleged past misrepresentations of Tether’s collateral.

As part of a February 2021 settlement with the New York Attorney General's Office, Tether is required by law to publish quarterly reports outlining the specific composition of its cash and non-cash reserves.

Ardoino also told the WSJ that the company will move to monthly reports soon as part of an effort to be more transparent.

Earlier this month, Tether closed a contract with BDO Italia to help the issuer of the largest stablecoin achieve accountability through independent attestation. However, a full audit of the company has not yet been carried out, which would allow a deeper study of Tether's financial performance and present the full scale of its activities.

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