Tether Cuts Commercial Paper Backing to Zero

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  • Tether has cut its reliance on commercial paper to zero
  • Commercial paper is a form of unsecured commercial obligations from third parties
  • These debts have now been replaced with U.S. Treasury Bills

Tether has followed through on its promise to cut its reliance on commercial paper backing from 65% to zero. The stablecoin issuer announced yesterday that it has fulfilled its goal to replace commercial paper reserves with U.S. Treasury Bills (T-Bills) as part of its “ongoing efforts to increase transparency”, putting an end to suggestions that its commercial papers were composed of “toxic” debt and it was selling them at a 30% discount to get rid of them.

Transparency Report Kicked Tether into Action

Tether has been on a mission to rid itself of its commercial paper backing, which, as of May 2021 when Tether released its first transparency report, constituted almost two thirds of its reserves. This news immediately troubled many in the crypto space, with rumours abounding this year that the debt associated with the commercial papers was linked to the collapsed Three Arrows Capital, among other bad debts.

Commercial paper was introduced around 150 years ago as a way of companies raising capital by selling their short-obligations to a third party. The important thing to know about commercial paper is that it is not backed by any form of collateral, making it unsecured debt. This is one of the reasons why it was troubling that Tether utilised it to the extent that it did.

Treasury Bills Now Make Up Biggest Backing

Tether stated this year that it was working on bringing its reliance on commercial paper down to zero, which it has now done, replacing these unsecured investments with T-Bills, a form of short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less. T-Bills, then, while still not cash, have a far more secure backing, and can be seen as cash equivalents.

Tether said in a press release that the announcement “comes as part of Tether’s ongoing efforts to increase transparency, with investor protection at the core of the management of Tether’s reserves”, and that as of yesterday “the goal to bring the figure down to zero has been fulfilled.”