Uncertainty on Tether - stable coin may be backed by reserves given as loans to large Chinese companies

in hive-175254 •  3 months ago 

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China’s shadow is still on the crypto world indirectly!!

One hears a lot of China in the crypto world, what with all that crypto crackdown news that has been creating FUD in the crypto market, leading to dips in prices of Bitcoin. Right, this may be old news and the crypto market may have forgotten it and got tired of it, however, there are more Chinese associations with crypto, with the potential to cause turmoil to the crypto market again!!

I know, China...China...China forming headlines of late even after we have reconciled with this Covid pandemic gifted by them to the world.

Yes, the world economy rocked to the news of the Everglade crisis, where the Chinese real estate company has more than 300 $ billion of debt that it may not be able to repay. The complete dramatic reaction to this phenomenon may not have yet unfolded, but fears of catastrophic effects of this lingers on the world economy.

Anyway, this post is not about the Everglade crisis, it’s about the stable coin Tether, the ever popular USDT that has the largest amount of trading volume in major exchanges and is the top most base stable coin that is paired with cryptocurrencies to trade in top exchanges.

Yes you get the picture - BTC/USDT, ATOM/USDT, DOT/USDT etc…


No guarantee of Tether’s USDT value being equal to that of the dollar!!

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Now, we all are aware of USDT being a controversial stable coin, as Tether whose parent company is Bitfinex, has not been transparent with audits to reveal whether every USDT that’s minted and in supply is completely backed by US dollar reserves.

Tether’s total marketcap is $69,460,457,766 as per data from Coingecko, so to be a reliable stable coin, USDT should be backed by $69,460,457,766 of US dollars, as every USDT that’s minted and in circulation should be backed by 1 dollar, pegged at a ratio of 1:1.

So, there are serious concerns and doubts on the matter of whether USDT’s value is backed adequately for it to be actually equal to the value of a dollar.

News that Tether’s reserves may be backed by loans given to Chinese companies - OMG!!

Image by Rilsonav from Pixabay

Now, all this is known news, but there is a fresh dose of news that should worry crypto followers, investors even more, because this highlights suspicions on the quality of assets that back USDT.

A Bloomberg article has claimed that Tether has given billions of dollars of loans to large Chinese companies, including Everglade. So, Tether holds commercial papers of these Chinese companies that Tether may be using as reserves to back the value of USDT.

Ouch, that’s a bombshell of a news which you can read about in this article -

Of course, these claims are strongly denied by Tether, but what’s evident as it was even earlier is that Tether’s reserves are not completely backed by dollar reserves, and a large portion of its reserves are backed by commercial papers of companies which is a financial debt instrument.

Tether has itself made public attestations saying that it holds debt instruments like commercial paper as reserves backing the value of USDT. The amount of USDT reserves backed by this commercial paper loan instrument is 30$ billion dollars which is definitely huge.

Warning for investors to avoid having crypto transactions using USDT as far as possible

Now, with this Bloomberg news raising concerns on the quality of loans backing Tether’s reserves, I am convinced that its wise to avoid having USDT dealings as much as possible and try to use other stable coins instead - BUSD, USDC, HUSD, TUSD etc, I hear these stable coins are well audited so its not risky to hold them like it is to hold USDT!!

Require crypto trading pairs listed with other reliable stable coins

However, the problem is that not all cryptos have trading pairs with other stable coins. For instance, when I went to book profits on my HIVE trade in Binance exchange, the trading pair that was available then was HIVE/USDT and HIVE/BTC, so I had to do trade in USDT.

Fortunately, yesterday Binance had listed the HIVE/BUSD pair to trade so I have put up the order to rebuy HIVE (which has now corrected from the price I booked profits) using BUSD. I am trying my best not to use USDT coin as far as possible, however I feel many exchanges have not listed other stable coin pairs for us to use as alternatives to USDT.

Tether’s reputation is already bad

Other than this its known news that Tether is currently being investigated by various law enforcement agencies - U.S. Department of Justice and the Federal Bureau of Investigation.

The reputation of Tether is all grimy with mud and early this year Tether had to pay up a fine of $18.5 million to the New York Attorney General to settle a case, which claimed that Tether was conducting “illegal activities” in New York.

Thank you for reading my article, have a great day!!

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