That a top Wall Street firm is working with stablecoin issuer Tether on its $39 billion in Treasury bonds could dampen worries that the reserves backing USDT are insufficient.
More than half of the $69 billion in Treasury bonds backing the biggest and most traded stablecoin are being managed on Wall Street, according to a new report.
The well known financial services firm Cantor Fitzgerald, a global leader in the bond market, is helping the secretive stablecoin issuer Tether manage its $39 billion portfolio of U.S. Treasurys, according to The Wall Street Journal.
The news could help bring stability to Tether, which has long struggled with questions about whether the assets it says back its dollar-denominated USDT tokens really are sufficient or even exist.
The So Whats
The first "so what" is that more than any other stablecoin, USDT is the lubricant that keeps crypto trading running. Stablecoins make it far easier to trade one token for another by providing an intermediary token pegged to the U.S. dollar, and for investors to park funds between trades.
USDT's 24-hour volume was $33.6 billion on Feb 10. The No. 2 stablecoin, Circle's USDC, had a 24-hour volume that was a tenth of that.
The second "so what" is that if users lose faith in Tether's ability to process requests to redeem USDT for dollars, it could suffer a run, much like the one that killed the TerraUSD stablecoin last year, setting off a cascade of bankruptcies.
What's Under the Hood?
Tether's problems began in 2019, when New York's Attorney General sued and then fined the company $18.5 million after it quietly loaned sister company Bitfinex hundreds of millions of dollars when the exchange was robbed by a partner of some $850 million.
That left Tether without sufficient funds to cover all withdrawals, the NYAG said.
Subsequent issues included concerns when it was discovered that a great deal of the backing funds were not kept in dollars or highly liquid investments like U.S. Treasurys but in corporate paper that is not necessarily as liquid, although it pays a higher return.
On Feb. 9, Tether reported a $700 million profit and said it had completed the more than year-long process of replacing its corporate paper with Treasurys. However, in December it said that over the course of 2023 it would replace the loans it made as well. While saying they are overcollateralized with "very liquid assets," Tether said it was necessary to fight what it called "FUD" — fear, uncertainty and doubt.
On Feb. 10, a judge refused Tether's request to prevent news outlet CoinDesk from seeing what the NYAG found about Tether's finances under a freedom of information law request.
The problem is that while Tether releases "attestations" about the make-up and size of its backing assets, it does not have full independent audits — something for which it's long been criticized.
News that a top Wall Street financial firm is helping Tether manage a large chunk of those assets won't put FUD to rest once and for all, but it should tame it.
