- Tether has underwhelmed the crypto space with its first transparency update
- The company revealed that its $42 billion reserves is only backed by 3.87% cash
- Tether produced two vague pie charts to try and prove how its assets are backed
Tether has published its first transparency update since the Office of the New York Attorney General demanded it as part of a settlement deal, and it has left many aghast at both its contents, its wider meaning, and its presentation. The first of the company’s long-awaited transparency breakdowns consisted of two pie charts which gave the same vague explanations of the jumbled mess that backs each USDT token, with the revelations prompting ridicule on social media and the update asking more questions than it answered.
Tether Backed by Risky Borrowing
Tether’s first transparency update revealed the startling news that cash makes up only 3.87% of each token’s backing, with commercial paper (a kind of short term loan), fiduciary deposits, and loans making up the bulk of the reserve. Incredibly, “other investments” that also back the token include “digital tokens”, meaning that cryptocurrencies make up some of the backing of Tether.
As many noted, the lack of detail concerning the loans, commercial papers, and other mysterious forms of lending is staggering:
this chart raises more questions than it answers! Who’s the fiduciary? Who are the comm paper counterparts? Reverse Repo Notes? To whom are the “secured loans” if not for affiliated entities? (2/5)
— RiskIndemnity 🌷⏳ (@RiskIndemnity) May 13, 2021
Until March 2019, Tether claimed to be 1-to-1 backed with dollar reserves, meaning they were either lying the whole time or their sudden expansion to a $42 billion operation has meant that they have been scrambling around for any kind of backing they can, reducing actual cash backing to a minimal percentage and taking on risk in order to keep printing. This was noted by Caitlin Long who commented that “There’s lots of credit risk in the reserve portfolio”.
Besides the utter lack of transparency in the Tether transparency update, many noted the comically bad nature of the presentation:
Tether publishes … two pie charts of its reserves https://t.co/DHTFJ6tt3m Does nine lines of text on two pie charts satisfy Tether’s agreement with the New York Attorney General to publish a breakdown of its reserves?
— David Gerard 🐍👑 🌷 (@davidgerard) May 13, 2021
— High in Seattle (PhD/DEng) (@high_in_seattle) May 13, 2021
It also can’t be ignored that Tether published this data, which it has been holding onto since March 31, on the day when the crypto world was being besieged by FUD from Elon Musk and an alleged investigation of Binance. Handy, huh?
NYAG Will Want More…Much More
As we mentioned when the Tether case was settled in February, the concerns over Tether’s solvency would not be completely put to bed until the first transparency update was seen and approved by the NYAG. Whether a more detailed breakdown of Tether’s backing has gone to the NYAG we don’t know, but we can be pretty sure that if this pathetic one-pager is what Tether is submitting as evidence of its backing then we can be sure that Tether has just put itself back into a whole heap of trouble.