The collapse of the stable UST coin of the Terra project led to the revaluation of other stablecoins. Tether’s USDT came under attack because the composition of reserves did not match the promises even before the crisis. As a result, the capitalization of the first largest stablecoin decreased by 12% in two weeks.
Initially, Tether made a promise to provide $1 in a bank account for each issued USDT, but did not fulfill it. In 2018, the company printed almost $1 billion to provide a loan to the Bitfinex crypto exchange, which faced a liquidity crisis (more in our material).
The truth was revealed when the New York State Attorney General’s Office began its own audit. For the pre-trial settlement, Tether was ordered to pay a fine of $18.5 million and publish a report on the state of reserves on an ongoing basis. So it turned out that Tether holds less than 5% of the reserve in fiat, and more than half is occupied by commercial securities. After the audit, Tether changed the wording about providing “dollar reserves”, adding crypto assets and income from lending.
The dramatic fall of LUNA and the untying of the UST stablecoin have re-actualized the issue of Tether’s liquidity. On May 12, the USDT rate dropped to $ 0.94, and panic even touched Bitcoin, which sank to $ 25 thousand.
Tether managed to normalize the situation, but the outflow of funds with insufficient quality of reserves can lead to a repeat of the situation and more negative consequences.
Since 2022, the company has been rebalancing reserves, as evidenced by a recently published report (as of March 31) from MHA Cayman, based in the Cayman Islands. Thus, the total amount of consolidated assets slightly exceeds liabilities and amounts to $82.4 billion. At the same time, commercial securities account for about a quarter or $ 20.1 billion, whereas in the fourth quarter of 2021 this group totaled $24.2 billion.
In the second quarter of 2022, Tether promises to reduce it by another 20%.
As the share of commercial securities decreases, the volume of the reserve in US bonds increases – from $34.5 billion to $39.2 billion.
It should also be borne in mind that this report is not an audit, but is financial information based on an accounting book. MHA Cayman emphasizes that the valuation of Tether assets is based on current conditions and does not reflect a possible large-scale correction in the markets or the consequences of default of key counterparties.