Robert Steinadler, 2 months ago

Tether is backing its stablecoins with US treasury bills

Over the last three years, Tether was and is under constant attack. It promised that each USDT was backed by 1 US-Dollar for a long time. It was only after a trial in New York was concluded that the reality was revealed to investors. As little as 3 % were backed by actual US-Dollars in bank accounts and that raised concern over the question of whether Tether is a systemic risk to the crypto space or not. Another result of the trial is the increased transparency and recently Tether revealed another move of how their stablecoins are backed.

Why is Tether moving over to t bills and why is this good news?

Commercial papers were a concern

It was last week when Tether announced that it moved completely away from so-called commercial papers. These papers gave critics yet another talking point over Tether since commercial papers are nothing other than debt.

This debt is unsecured and can be owed by various companies and critics pointed out that the public cannot be too sure that debtors have enough liquidity and are credible. When the Fed increased the interest rate many fear-mongered that this could also affect the commercial papers negatively that were being held by Tether.

While there were many rumors about which companies are involved with Tether it was never made public except in cases where complete falsehoods were being spread. Such as the involvement of Tether in the Evergrande crisis, which was denied by Tether in September last year.

Treasury bills are the replacement

According to Tether starting from October 12 all commercial papers have been erased from the company’s balance sheet and replaced with direct exposure to U.S. treasury bills. T-bills are considered to be way more secure and offer much more stability.

It is that stability that inspires trust with investors who use mainly Tethers USDT on a daily basis for a variety of reasons. After the collapse of Terra and UST, the whole stablecoin sector came under scrutiny despite the fact that companies like Tether have learned from past mistakes and started to be more transparent to regulators and investors.

With the current shift, the company backs the $69 million market cap of USDT by 40 % with T-bills. Critics on the other hand are still not satisfied with the move pointing out that the rest is backed by an unknown mix of precious metals, stocks and even digital assets like Bitcoin. Assets like BTC can be highly volatile and it is up for debate if Tether’s exposure to such risk is a benefit or a burden.

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In the last couple of days many misconceptions about stablecoins were discussed in the media. The FUD was juicy and the story was told that Tether (USDT) and Circle (USDC) had exposure to FTX and could face serious consequences. None of this is true and while FTX is imploding, stablecoins are not affected.

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