It has revealed to us that for every Tether in circulation on March 31st, 2021 they had approximately 3 cents.
Obviously it is a little more complicated than that. We know they have to have something else in their reserves. So what is it? The largest share of their backing is in the category they call “Cash and Cash Equivalents and Other Short-Term Deposits and Commercial Paper”. That category is dominated by Commercial Paper. Commercial paper is largely unsecured bonds issued by companies to raise short term funds. It is unclear which corporations are included in this commercial paper. It is important to note that the asset breakdown very clearly says that the ‘Secured Loans’ are not to affiliated entities, it makes no such distinction for commercial paper. It is certainly possible that the commercial paper is coming from an affiliated entity.
The next largest section is fiduciary deposits, which is funds being held in an account opened by someone else.
Then secured loans, which is Tether loaning out funds to other businesses. We have no insight into the credit-worthiness, but since they are secured there is an extra bit of protection for these facilities.
Corporate bonds, funds, and precious metals is also a significant portion. We again have no insight into the specifics about the funds or bonds, the precious metals is likely gold since they have gold for the Tether Gold token.
Then we finally have the really liquid cash equivalent type assets, the cash, the treasuries,
and the reverse repo notes. (Update: I am no longer confident on what reverse repo notes are after reading David’s piece on this same topic). All backed by the full faith of the US government, and assets I am very comfortable with Tether holding.
Finally, they hold millions of dollars worth of Bitcoin to back Tether.
Tether also holds equity in some companies like Samson Mow’s game but I do not see that on the backing, unless it goes under ‘Other Investments’ with the Bitcoin.
What does this all mean? It means I’m exhausted. Tether backs their liabilities with liabilities and launches them into a market-place that treats Tether as if they are safe and secure as a money market fund. Huge portions of Tether backing are assets who’s value is inherently dependent on counterparty’s creditworthiness and we know nothing of the creditworthiness. The market seems okay with this. People seem even relieved to have this breakdown.
I think it is absurd that a coin started with the premise that each token would be backed by a dollar is now backed by three pennies, but the market seems to feel comforted, so I guess if you choose you may continue to trust the liars who cannot maintain accurate records and who enter into deeply problematic transactions while using money launderers then you are free to do so.
Update: Cas and I discussed this asset breakdown on a podcast.
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