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Tether vs. the Media Battle! Documents reveal Tether's reserve assets were linked to Chinese company securities.

2023/6/17

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In October 2021, Bloomberg raised numerous questions about the reserve assets of stablecoin issuer Tether and published "Has Anyone Seen Tether's Billions?". According to Bloomberg's investigation at the time, Tether had lent billions of dollars from its reserve assets to Chinese companies and crypto platform Celsius. Tether denied any connection to the debt crisis of the troubled Chinese Evergrande Group but refused to disclose whether it held securities from other Chinese companies or issuers.

Now, under the New York Freedom of Information Law (FOIL), Bloomberg and CoinDesk have both requested the New York Attorney General's Office to make public the relevant data reported by Tether for the first quarter of 2021. This further confirms that Tether had classified securities issued by Chinese companies as part of the reserve assets backing its stablecoin USDT, along with detailed information on its banking and loans.

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Tether's Reserve Assets Involve Chinese Corporate Securities

Last July, Tether stated that it did not hold any Chinese commercial paper at the time and that its total commercial paper holdings had decreased to $3.7 billion, with plans to reduce it to zero over the next few months.

According to documents released by the New York Attorney General, Tether had previously held securities issued by Chinese state-owned large enterprises, including the Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China. The documents did not indicate the timeframe during which Tether held these securities, with maturity dates set for 2020 or 2021.

In addition, Tether also held securities issued by companies such as Deutsche Bank, Barclays Bank, and ArcelorMitStablecoin.

Tether's Correspondent Banks

The documents detailed Tether's banking relationships, loans, and investments through reserve assets. It highlighted Tether holding accounts in multiple Bahamian banks.

As per the documents, Tether's reserve assets as of March 31, 2021, were held at Deltec Bank, Ansbacher Bahamas Limited, Capital Union Bank, and Far Eastern International Bank.

Tether also held reserve assets in funds at Bradbury Investment and Metis Global Partners. Additionally, it held USD and Bitcoin at the cryptocurrency exchange Bitfinex, which is an affiliate of Tether. As of March 31, 2021, Tether also held over $2 billion in reserve assets in gold storage.

For corporate operating accounts, Bitfinex and Tether utilized bank accounts at Deltec and Far Eastern International Bank. Tether's lawyers stated that Bitfinex and Tether did not use reserve funds for operational purposes, and only Tether's CFO and CIO were authorized to transfer profits from the reserve account to the operating account.

Tether's Issuance of Large Loans

According to the documents, as of March 31, 2021, Tether's loans amounted to $5.1 billion, with no more than 30 borrowers. These loans were collateralized by digital assets such as Bitcoin or Ethereum or securities.

Tether's loan program plays a significant role in the cryptocurrency sector. Bloomberg compared this to Genesis, one of the largest lenders in the digital asset space, reporting total active loans of $9 billion in March 2021.

The documents also mentioned that Tether had provided loans to Bitfinex, which was fully repaid on January 13, 2021. Bitfinex had borrowed over $600 million from Tether in 2018, a transaction made public in late 2019 when the New York Attorney General accused the exchange of losing $850 million of customer and corporate funds to payment processor Crypto Capital Corp.

Tether Responds to Media Reports

Tether also released a statement yesterday, explaining that since reaching a settlement with the New York Attorney General's office, Tether has fulfilled its quarterly reporting obligations and remains committed to transparency regarding reserves while prioritizing customer privacy and security.

Tether stated that the submitted data was outdated and does not represent the current state of Tether. Presently, Tether has reduced its secured loans from 8.7% to 6.5%, with its holdings in U.S. Treasury bonds reaching an all-time high of over $53 billion, accounting for more than 64% of its total reserves.

Tether refuted rumors of dealings with Evergrande and other companies. It mentioned that its exposure to Chinese commercial paper was mainly concentrated in the banking sector, and all Chinese commercial papers held were liquid and issued by well-known international issuers in the commercial paper market. Tether had reduced its commercial paper holdings to zero last year without incurring any losses.

Regarding loans, Tether emphasized that collateral is calculated at market value and has an effective margin call system in place. Tether selects a larger group of clients for loan transactions and uses overcollateralization, ensuring no losses for Tether. It urged the media not to disclose wallet addresses, names, and other identifiable information that could jeopardize third-party security, protection, and privacy interests.

However, when asked if these documents could be made public, Tether firmly declined, stating that relinquishing its block on media access to the documents, including CoinDesk, was simply to avoid spending time and resources on litigation.

The Role of Stablecoins in the Crypto Market

As stablecoins often play an intermediary role between traditional finance and the crypto market, the quality of assets backing stablecoins is highly scrutinized. Particularly, Tether's USDT market dominance continues to reach new highs, firmly holding the leading stablecoin position, with a circulating supply exceeding $84 billion. Failure to redeem these tokens for USD could impact investor confidence in the crypto market.

Having weathered multiple FUD and slight decoupling incidents, Tether's prices across exchanges have returned to around 0.9996 levels, having dropped to 0.9973 on September 15. With recent stringent regulatory actions in the U.S., will Tether be the next target for scrutiny? Tether, always claiming transparency and making significant profits, raises questions within the community about its revenue sources.