Tether does not want to meet the same fate as the UST – Stablecoins have been at the heart of the debate since the sharp fall of the UST from Terra Luna last week. Faced with the magnitude of the event, other stablecoins such as USDT have moved away from their dollar benchmark. A worrying situation that pushes the Tether company to strengthen its reserves.
Tether improves the quality of its reserves
The cryptocurrency ecosystem hosts two major families of stablecoins. On one side we have centralized stablecoins, like USDT or USDC. They are issued by a company and their stability is ensured by dollar reserves.
On the other hand, we have the so-called algorithmic stablecoins, whose reserves are based on cryptocurrencies.
Faced with the recent fall in the UST and the increase in volatility on the USDT, the company Tether announced several measures to improve the quality of its reserves.
Thus, the company indicated that it had reduced its commercial paper holdings by 17% in the first quarter of 2022, from 24.2 to 20.1 billion of dollars. In addition, the company plans to reduce these commercial papers by an additional 20% during the 2nd quarter of the year.
At the same time, the company increased its positions in money market funds and US Treasury bonds by 13%, from $34.5 billion to $39.2 billion.
In total, Tether’s reserves are valued at over $82 billion for a USDT market capitalization of $74 billion. However, the company holds less than 5% of its bank deposit reserves.
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The quality of reserves questioned
These improvements in Tether reserves come a few months after debates around the quality of the latter.
Indeed, last October, our colleagues from Bloomberg revealed that a large part of Tether’s commercial paper holdings had been issued by Chinese companies. Subsequently, the lack of transparency regarding the identity of the companies in question led several analysts to question the quality of these reserves.
For its part, the UST of Terra Luna is in a very bad position. The setbacks encountered by the ecosystem continue to have significant repercussions. In effect, resignations are on the rise at Terraform Labs.
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