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Wall Street Journal’s strange report on USDT backing; Is Tether on the verge of bankruptcy?

Wall Street Journal's strange report on USDT backing;  Is Tether on the verge of bankruptcy?

Recently, an article has been published in the Wall Street Journal (WSJ), which claims that Tether’s balance sheet is in a situation where even a 0.3% decrease in the value of the company’s underlying assets can lead to Tether’s bankruptcy.

According to Mihan Blockchain and quoted by Cointelegraph, Jean Eaglesham (Jean Eaglesham) and Vicky Ge Huang (Vicky Ge Huang), two journalists of Wall Street Journal in a report They talked about the ambiguous nature of Tether reserves and its audit and the possible bankruptcy of this company.

In this report, Eaglesham and Huang noted that if Tether’s liabilities exceed the company’s balance sheet assets; It will lead to confusion in the market:

A 0.3% drop in Tether’s balance sheet assets makes it technically insolvent; Critics believe that this will destroy investor confidence and cause a massive selloff of USDT.

Tether’s debt is actually the same USDT tokens issued by the company, which is currently about 67 billion tokens in different networks, and since each token has a value of $1; This figure is equal to 67 billion dollars. Since these tokens must have the property of becoming fiat money at any moment; It is called Tether debt.

At the time of writing this article and based on the data published in Tether website, this company has 67.74 billion dollars of assets in its treasury and the amount of its liabilities has reached 67.54 billion dollars. This means Tether’s liabilities are only $191 million less than its balance sheet assets.

However, Teter CEO Paolo Arduino downplayed the small difference between the company’s balance sheet and its liabilities and expects the company’s assets to grow significantly over the next few months.

He stated in this regard:

I don’t think we are facing systematic risk in the market.

Arduino also noted that the company has had no problems redeeming its customers’ USDT, and during the recent cryptocurrency market crash, it managed to redeem $7 billion of this token in just 24 hours.

Tether stated on its website that currently, 79.62% of its reserves are backed by currency, cash equivalents, other short-term deposits, and US Treasury bonds and commercial paper. Another 8.36% of Tether reserves consist of investments in unspecified digital tokens. 6.77% belongs to secured loans and another 5.25% is made up of corporate bonds, mutual funds and precious metals.

According to a previous report by Blockchain Homeland, Tether is reducing its trading paper backing with the goal of zeroing it out. These bonds have low liquidity.

However, Arduino declined to comment on Tether’s other investments ($5.6 billion) in a conversation with The Wall Street Journal.

Given Tether’s dominance of the cryptocurrency market, as well as the company’s troubles with US regulators regarding misrepresentations about its USDT backing, the nature of Tether’s reserves has long been a key question in the crypto community.

After Tether was fined $18.5 million in February 2021, the New York Attorney General’s Office required Tether to publish quarterly reports on its cash and non-cash reserves.

In his conversation with the Wall Street Journal, Tether’s CEO also mentioned that soon, he will publish reports on his reserves on a monthly basis in order to provide more transparency.

Earlier this month, Tether signed an agreement with major accounting firm BDO Italia, according to which the firm will contribute to greater transparency regarding Tether’s backing. However, a full audit of Tether’s balance sheet is still lacking and needs to be done.

Author’s analysis: The Wall Street Journal’s report in this regard may create FUD in a section of Tether users. But the fact is that, according to this report, Tether has created support for it almost as much as the tokens it has issued, and this is normal, and it cannot be concluded that it is close to bankruptcy. The non-transparency of these supports and their creditability is another issue that has put Tether under pressure, which should be clarified on the part of this company.

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