Is Tether 100% backed by dollars?
Tether acknowledged last year that it had a certain amount of cash, but had also purchased a significant volume of treasury notes, which are short-term corporate debt. Tether does not disclose which companies it owns treasury notes or where they are located, which has raised concerns.
However, the company intends to gradually reduce its commercial paper reserves. Commercial paper made up just over 30% of Tether’s total reserves in Q4 2021, up from over 44% in Q3.
“Over time, we will continue to reduce commercial paper; we’re not done yet”Paolo Ardoino, technical director of Tether and the Bitfinex exchange, told CNBC during the summit of the Paris Blockchain Week of April 13.
According to a report by an accounting firm, approximately $30 billion of its dollar assets are invested in commercial paper. This would put Tether on par with a bank like Charles Schwab ; and as the 7th largest holder of this type of debt.
What if Tether collapses or goes bankrupt?
After an anonymous anti-Tether blog post titled “ The Big Short: Inside Bitcoin’s Doomsday Machine » went viral, CNBC’s Jim Cramer advised viewers to sell their cryptos! ” If Tether collapses, it will destroy the entire crypto ecosystem”did he declare.
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The quantity of inferred assets in dollars of Tether, in the eyes of regulators, is so large that even assuming all Tethers tokens are backed in dollars, it would be risky. If a large number of investors demand their money back at the same time, the company could be forced to liquidate its assets at a loss, triggering a snowball effect.
The collapse would not only concern cryptos. Credit markets could fail, leading to losses in the regulated financial system. A collapse of Tether would be more catastrophic than that of Bernard L. Madoff Investment Securities.