Tether Cuts Down Its Commercial Paper Reserves By 58%

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Stablecoins
Tether Cuts Down Its Commercial Paper Reserves By 58%

The Stablecoin issuer has confirmed the reduction of its commercial paper reserves, addressing the speculations of lack of support for its USDT token.

Tether Seeks to Tackle Quality With Reduction of Holdings

Tether has reduced its paper reserves by almost 60%. The globe’s largest stablecoin issuer announced on Friday that it had cut its holdings from $20.bln to $8.5 bln in a bid to diversify into treasury bonds.

According to the update, its commercial paper will undergo further reduction to about $3.5 bln. This would continue until it’s holding us zero.

Tether Addresses Speculations of Lack of Transparency

Commercial paper is a short-term, unsecured debt issued by financial entities and big firms to finance liabilities and inventories and meet other expenses. It isn’t backed by anything other than the issuer’s words to pay the debt at the agreed date to the investor. 

The value of commercial paper depends on the issuer. Compared to secured debt, this financial instrument has low liquidity. 

Tether was once accused of concealing the truth of its USDT token supply and its backing, leading to speculations that the company is tied to financial companies and hedge funds. The company was eventually fined $18.5 mln for lying about its reserves.

Still, Tether maintained that the statement was misunderstood. Seeking absolution, it published a record of its holdings, independently verified by MHA Cayman. In the report, Tether stated it held $39.2 bln in Treasury and $4.1 bln in deposits. 

The company further clarified it held $6.7 bln in the money market and around $3 bln in secured loans. 

USDT Continues to Plunge Amid Market Blood Shed

The crypto market has been in a devastating state since January, but recent capitulation has created doubt about a possible recovery. The market is grappling with the fear of running into financial ruin and over the crypto market’s prospects. 

Bitcoin and Ether are at their lowest in over a year. The stablecoin market is the worst hit, with its leading issuer, Tether facing increased pressure from investors over a potential massive crash. Financial expert Hilary Allen stated that the company is the life wire of the crypto space. An implosion will affect the entire system.

USDT’s market cap has declined from $82 bln to around $66 bln in the last two months due to the fear created by the collapse of the Terra ecosystem. In May, UST, an algorithmic stablecoin, lost its peg to the dollar, which led to a downward spiral of the entire market.

Wall Street suggests that several hedge funds are going short on the token. But, Tether executive Paolo Ardoino dismissed such rumors, calling the report untrue and creating FUD. 

The company assures investors of the safety of their cash because its stablecoin reserve is supported by fiat and other assets. However, investors are still afraid, considering that the majority of its reserves are in commercial paper. 

Ifeanyi Egede

Ifeanyi Egede is an experienced and versatile writer and researcher. He has keen interest in blockchain technology, cryptocurrencies, NFTs, Web3, metaverse, fintech and emerging technologies. He has tons of published works both online and in the print media. He has close to a decade of writing experience. When he is not writing, he spends time with his lovely wife and kids.