- According to Bloomberg BW, stablecoin issuer Tether has provided billions of dollars in loans to Chinese companies.
- The value of the loans backing Tether’s stable coin reserves could be one of the risk factors for the cryptocurrency industry.
- Tether has faced scrutiny from authorities and investigators in the past.
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A Bloomberg investigation found that Tether holds billions of dollars in Chinese commercial paper.
Bloomberg investigation raises new concerns
Today, Bloomberg Businessweek You mentioned that the issuer of the stablecoin Tether owns billions of dollars in commercial paper issued by large Chinese companies and that it may be using these assets to back up its stablecoin reserves.
According to the documents received Bloomberg BusinessweekTether has provided billions of dollars in loans to large Chinese companies, including those in the troubled real estate sector.
The report investigated the quality of the assets backing USDT, and alleges that the debt assets backing its dollar reserves may be of questionable nature.
USDT is designed to be pegged to the US dollar in a 1:1 ratio, making it possible to trade crypto assets without relying on traditional banking services by providing a fixed unit of account. USDT leads the stablecoin market by trading volume and acts as the base currency for the base pair to trade across many large crypto exchanges, including Binance, FTX, and others.
The report revealed that the stablecoin firm also provided a $1 billion loan to Celsius, a central crypto-lending platform that was recently accused of violating securities laws by the US states of Alabama, Texas and New Jersey.
Chinese debt may be a risk factor
Previous public certificates of Tether include several short-term deposits and commercial paper held as reserves to support the USDT stablecoin. In fact, $30 billion of Tether’s dollar holdings are invested in commercial paper, making it one of the largest holders of this debt asset class and putting the company ahead of some of the major financial firms.
Chinese real estate developers are among the world’s largest issuers of commercial paper. Before falling into a major crisis, Chinese real estate developers issued 3.6 trillion yuan ($556 billion) of commercial paper in 2020 – 20% more than in 2019.
This is not the first time that concerns have arisen about the true value of USDT. In fact, Tether has been accused several times that its stablecoin is not backed by the entire dollar reserves of its $69 billion market capitalization.
However, Tether vehemently rejected the allegations and stated that it maintains the full value of the reserves that support its stablecoin supply. It is also alleged that Tether also holds commercial papers issued by Evergrande, the second largest real estate developer in China, which itself is experiencing a major liquidity crunch.
Tether denied having any debt to Evergrande and claimed that he holds only commercial paper issued by A-2 and higher-rated companies, which the company claims are risk-free assets. But the company did not explain the exact details of its debtors.
The company has tried to allay growing concerns expressed by major financial media about its dollar reserves. In response to the Bloomberg BW Report, released a blog claiming that the report is spreading “disinformation.”
Tether has had transparency concerns in the past, too. Just last month, Bitfinex, the parent company of Tether, attempted to block CoinDesk from accessing details of its trading paper holdings by filing a petition in the New York Supreme Court.
Tether is currently under investigation by several law enforcement agencies, including the US Department of Justice and the FBI.
In early 2021, Tether paid a fine of $18.5 million to settle a case with the New York attorney general. In the NYAG investigation, it was found that the company was engaged in “illegal activities” in New York.
Tether reserves remain unaudited.
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