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Tether is on the Brink of Insolvency, Balance Sheet In A Pathetic Condition: Wall Street Journal

29 Aug, 20223 min readAltcoins
Tether is on the Brink of Insolvency, Balance Sheet In A Pathetic Condition: Wall Street Journal

Two weeks ago, Tether made headlines about the improvement in its market capitalization and the fact that it managed to reverse a three-month downtrend.

However, Wall Street Journal’s (WSJ) recent article has claimed that Tether’s balance sheet is in such a meek position that even a 0.3% drop in the value of its reserve assets could “render Tether technically insolvent.”

WSJ journalists Jean Eaglesham and Vicky Ge Huang, in their August 27 report, emphasized the volatile nature of Tether’s USDT reserves and its long-awaited audit that has been in the works since 2017.

The journalists suggested that if Tether’s liabilities were to outweigh its assets, then such a “thin cushion of equity” could cause mayhem in the market.

“A 0.3% fall in assets could render Tether technically insolvent — a development that skeptics warn could reduce investor confidence and spur an increase in redemptions,” they said.

As of now, Tether’s website mentions that it has $67.74 billion worth of assets and $67.54 billion worth of liabilities, showcasing a difference of merely $191 million.

Tether’s CTO Speaks Out

Tether CTO, Paolo Ardoino, understated the intensity of Tether’s tight margins. He told the publication that he expects its capital to “grow significantly over the next few months.”

Paolo added, “I don’t think we are the systemic risk in the cryptosystem.”

Ardoino informed the public that the firm managed to redeem $7 billion in just 24 hours during a recent crypto market crash, indicating that the company has had no issues redeeming customer funds.

As per Tether’s website, currently, 79.62% of its reserves are backed by cash, cash equivalents, other short-term deposits, and commercial paper. The remainder comprises 8.36% worth of other investments including unspecified digital tokens, 6.77% in secured loans, and 5.25% in corporate bonds, funds, and precious metals.

As per the report, Ardoino denied commenting on what Tether’s $5.6 billion worth of other investments consists of.

The nature of Tether’s reserves has been a lingering and major narrative in the crypto space because of the market dominance of its stablecoin and the firm’s dealings with regulators over alleged misrepresentations of Tether’s backing in the past.

In February 2021, as part of an $18.5 million settlement with the Office of the New York Attorney General, Tether was legally required to publicly release its quarterly reports, breaking down the specific composition of its cash and non-cash reserves.

WSJ also reported Ardonio saying that Tether will work on “imparting greater transparency, and hence, will soon switch to monthly reports.”

Supporting the same, Tether signed on with major accounting firm BDO Italia earlier this month to aid its reporting transparency targets by conducting independent attestations.

Notably, a full audit of the firm still needs to be conducted in order to dig further into Tether’s financials and provide the full scope of its operations. According to John Reed Stark, the former head of internet enforcement at the Securities and Exchange Commission, “Tether needs an audit that’s akin to a corporate colonoscopy, that tells investors everything about what’s in their reserves.”

Tether Witnesses A Surge

Around August 16, the market capitalization of Tether (USDT) tokens increased by nearly $2 billion since the U.S. Treasury Department imposed sanctions on cryptocurrency mixer Tornado Cash.

A Twitter user had suggested that users transferred around $1.6 billion worth of USDC to USDT following the Tornado Cash sanctions.

“Investors transferred over $1.6 billion from #USDC to #USDT after Tornado Cash was blocked.”

Back then, the CTO of Tether – Paolo Ardoino also poked fun about the “flipping” of USDC-USDT on Twitter.

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