An article in the Wall Street Journal (WSJ) has claimed that Tether’s balance sheet is in a position where even a 0.3% depreciation of its reserves could render Tether technically insolvent.
In a Saturday report, WSJ journalists Jean Eaglesham and Vicky Ge Huang focused on the murky nature of Tether’s (USDT) reserves and the highly anticipated audit that has been in the works since 2017.
Eaglesham and Huang suggested that such a “thin cushion of equity” could cause chaos in the market, if Tether’s liabilities were greater than its assets:
“A 0.3% drop in assets could make Tether technically insolvent – a move skeptics warn could reduce investor confidence and lead to an increase in redemptions.”
At the time of writing, Tether has $67.74 billion in assets and $67.54 billion in liabilities, making a difference of just $191 million, according to Tether’s website.
However, Tether chief technology officer Paolo Ardoino has downplayed the seriousness of Tether’s tight margins, telling the publication that he expects capital to “grow significantly in the coming months,” adding:
“I don’t think we are the systemic risk in [the crypto] system.”
Ardoino also pointed out that the company has had no issues redeeming customer funds and managed to exchange $7 billion in just 24 hours during a recent crypto market crash.
Tether’s website currently states that 79.62% of its reserves are backed by cash, cash equivalents, other short-term deposits and commercial paper. The remainder is 8.36% in other investments, including unspecified digital tokens, 6.77% in secured loans and 5.25% in corporate bonds, funds and precious metals.
However, Ardoino declined to comment on the value of Tether’s roughly $5.6 billion in other investments, according to the report.
The nature of Tether’s reserves is a long-running and important story in the crypto space, given the market dominance of its stablecoin and the company’s dealings with regulators over alleged misrepresentations of Tether’s support in the past.
As part of a $18.5 million settlement with the New York Attorney General’s office in February 2021, Tether is required by law to publish quarterly reports detailing the specific makeup of its cash and non-cash reserves.
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Ardonio also told the WSJ that it will soon switch to monthly reports as part of the company’s drive to provide greater transparency.
Earlier this month, Tether signed major accounting firm BDO Italia to support its reporting transparency goals by making independent statements. However, a full audit of the company has yet to take place that would dig further into Tether’s financial records and provide the full scope of its operations.
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