Tether, the leading stablecoin in the crypto market, has recently released legal documents shedding light on its banking relationships and commercial paper exposure.
Tether's Banking and Investment Holdings
According to the obtained documents, Tether maintained its funds in multiple financial institutions and investment management firms as of March 2021. The stablecoin issuer had banking relationships with four banks, including two gold depositories, two investment management firms, and a gold broker. Additionally, Tether held funds within its own sister company, Bitfinex.
Commercial Paper and Securities
Tether also invested in commercial paper and other securities issued by various entities. Notable among these were the Qatar National Bank QPSC, Barclays Bank PLC, Deutsche Bank AG, Emirates NBD Bank PJSC, and Natwest Group PLC. Furthermore, a significant portion of Tether's issuers consisted of different Chinese banks and financial institutions.
While Tether's reliance on commercial paper was previously known, the extent of its investment in this asset class remained undisclosed until now.
Chinese Banks' Involvement
Several prominent Chinese banks, including the Agricultural Bank of China Ltd, Bank of China Hong Kong, Bank of Communications Co Ltd, Industrial and Commercial Bank of China, China Merchants Bank, China Construction Bank, China Everbright Bank Co, and others, issued commercial paper and securities used to back Tether's token.
Tether's Reserves and Assets
The documents indicate that as of March 31, 2021, Tether held over $35.5 billion in U.S. dollar equivalents at the aforementioned financial institutions. The New York Attorney General's office shared these documents in response to a state Freedom of Information Law request filed in June 2021. The records, created on August 4, 2021, offer a snapshot of Tether's operations on that particular day.
Additionally, the documents reveal that Tether had $5.1 billion detailed under "USDT lending" and other assets, bringing the total asset value to $40.6 billion. This amount roughly matched the 40.8 billion USDT tokens in circulation at the time.
Unveiling Tether's Finances
The release of these documents provides a rare glimpse into Tether's finances, which have been a subject of controversy and speculation within the crypto industry. Although they neither prove nor disprove the claims made by the New York Attorney General's office during its settlement with Tether in February 2021, they contribute an additional piece to the puzzle of Tether's asset storage.
Over the years, information regarding Tether's banking relationships has been scarce, with only fragmented details emerging gradually. However, Tether's position as the world's largest stablecoin and its crucial role as a counterparty asset for crypto trades on numerous exchanges warrants transparency regarding its reserves.
Tether: The Leading Stablecoin
Tether (USDT) holds the distinction of being the largest stablecoin globally, serving as the counterparty asset for countless cryptocurrency trades. It is designed to maintain a stable value against the U.S. dollar, with Tether claiming to possess at least one dollar's worth of assets in reserve for every USDT token in circulation. However, concerns regarding Tether's full backing have persisted.
In April 2019, the New York State Attorney General's office alleged that Tether had loaned $850 million of its reserves to Bitfinex, an exchange sharing common corporate officers and parentage with Tether. Bitfinex subsequently lost access to this amount when its payment processor was seized by authorities. These allegations raised doubts about Tether's adherence to full reserve backing.
To address these concerns, Tether published its first public document in May 2021, outlining the composition of its reserves. At that time, approximately half of the reserves were held in unspecified commercial paper.
Enhanced Transparency Through Documentation
Following its settlement with the New York Attorney General's Office in 2021, Tether pledged to publish the same information it shared with the NYAG regarding its reserves for a minimum of two years. By this commitment, the released documents from April 7, 2021, contained detailed pie charts and specific U.S. dollar amounts representing Tether's reserves. While some information related to fixed-term deposits was redacted, it was evident that Tether held significant reserves in certificates of deposit, bonds, and particularly commercial paper.
Expanded Banking Relationships
According to a letter dated June 4, 2021, Tether maintained funds in Ansbacher (Bahamas) Limited, confirming previous reports by Forbes in February of the same year. The documents also revealed Tether's association with Capital Union Bank in the Bahamas, previously reported by the Financial Times and Far Eastern International Bank in Taiwan. However, the bulk of Tether's assets were held in Deltec Bank and Trust, based in the Bahamas, with a total of over $26 billion in reserves as of March of that year.
In conclusion, the release of these legal documents offers valuable insights into Tether's banking relationships and commercial paper exposure. While Tether's past reliance on commercial paper was known, the extent of its investment in this asset class was not previously disclosed. These documents contribute to a better understanding of Tether's financial operations, albeit within the limits of the information provided. As Tether continues to play a crucial role in the crypto industry, ensuring transparency and confidence in its reserves remains essential.