Tether, the multi-billion dollar “stable coin” that functions as the largest bank in the cryptocurrency economy, has paid out $10 billion (£8 billion) in withdrawals since the cryptocurrency crash began in early May.
The withdrawal speed means the company is effectively dealing with a slow-moving bank run as depositors want to move their cash to more tightly regulated stablecoins.
According to public blockchain records, $1 billion in tether was used when the cryptocurrency was returned to the company just after midnight Saturday and destroyed as part of the withdrawal process.
1.5 billion dollars was already used in the same way three days ago. The total amount withdrawn is currently around one-eighth of the company’s entire reserves, allowing for minor fluctuations in pegging the stablecoin.
The latest payback comes after Tether released its latest audited accounts, which means that as of the end of March, the company was backing its user deposits with a mix of US Treasury bonds, bonds in other private companies, and a variety of “other investments” of about $5 billion. including in other cryptocurrency businesses.
However, some have questioned whether the accounts are as reassuring to depositors as they seem. One fintech analyst has argued that the company may have struggled to match customer deposits if its investments in cryptocurrency businesses lost value during the market crash.
Like all stablecoins, the tether currency must always be of a stable value – in this case, one US dollar. The company says it achieves this by maintaining a large reserve of stable assets: retail investors can buy and sell tether on cryptocurrency exchanges, while institutional investors can pay directly into Tether and return tokens to buy newly minted tokens. cash to the company.
Initially, Tether claimed its reserves were backed by one-to-one US dollars. But after an investigation by the New York attorney general, the company admitted that wasn’t always the case, saying the currency was simply backed by “Tether’s reserves.” As part of this agreement, it has agreed to issue a quarterly statement detailing what these reserves contain.
The final statement before the recent crypto crash shows that Tether has stored about $20 billion of its cash in commercial paper, $7 billion in money market funds and about $40 billion in US Treasury bonds, all of which are generally stable investments. However, another $7 billion is stored in “corporate bonds, funds and precious metals” and “other investments (including digital tokens)”. As part of Tether’s reserves, it’s relatively small, but exposes the company to the risk of not keeping its promise of being “fully backed” should a major market fluctuation occur.
This may have already happened, said Patrick McKenzie, a fintech commentator working for payments company Stripe. McKenzie stated that Tether has $162 million more in reserves than the total outstanding tokens it has issued, according to company accounts. However, to list only one public investment from the company, some digital tokens owned by Tether are those of crypto investment platform Celsius.
“Tether has invested $62.8 million in reserves in the Celsius network… Celsius is in free fall due to the current market shift; The value of his local tokens has dropped over 86%,” McKenzie said. “Clearly, this investment has lost more than $20 million in value. A 1% impairment of an item on their balance sheet consumed more than 10% of its equity.”
Paolo Ardoino, Tether’s chief technology officer, said in a statement: “Tether has remained stable through multiple black swan events and highly volatile market conditions, and even in its darkest days, Tether has never failed to honor any refund request from its verified customers.
“This latest affirmation further highlights that the rope is fully supported and that the composition of its reserves is strong, conservative and fluid.”