Tether, a stablecoin pegged to the price of the US dollar, is facing scrutiny once again over the location of its reserve funds.
Tether Holdings Inc issues one token for each dollar it receives. This means that trades made using USDT are supposedly backed by the companies’ dollar reserves – a quality which has made Tether popular amongst traders and allowed the project’s market capitalisation to swell to $72bn.
An investigation by Bloomberg has revealed that Tether’s reserves may rest on shaky ground. The company reportedly has substantial holdings in Chinese commercial paper and has lent out billions of dollars to crypto projects including Celsius, a firm under investigation by the SEC.
In a statement, the embattled company hit back at accusations and called the Bloomberg BusinessWeek piece “a one-act play the industry has seen many times before.”
“The reporter refuses to let the facts get in the way of the story he wants to tell,” the spokesperson continued. “Here are the facts: All Tether tokens are fully backed, as we have consistently demonstrated.”
Not everyone in the crypto industry was reassured by the statement.
“Tether is supposed to have one dollar for every Tether in circulation. If their intent was different they should have disclosed that to the community a long, long time ago,” said Jason Meyers of Auditchain, a decentralised accounting firm.
Meyers warned that the extent of Tether’s exposure to Evergrande, a Chinese property giant which rocked global markets with news of its collapse, is as yet unknown. “If Tether has a substantial portion of its reserves in Evergrande commercial paper it could have a substantial albeit temporary effect on crypto markets,” warned Meyers.
It comes after Tether agreed to pay $18.5m to settle a New York suit after it was accused of covering up $850m of losses in partnership with Bitfinex.
As part of the settlement the company started reporting on its accounts quarterly, with its latest set of financial claiming that company has $30bn stored in Commercial Paper and $15bn in Treasury Bills.