Tether is making substantial changes to its stablecoin back up policy, the way USDT is pegged to the dollar. Some of the things Tether CTO Paolo Ardoino recently said on public raise serious questions about the future of the USDT – the most popular stablecoin on the crypto market.
During a recent event discussing the recent crypto volatility, Ardoino said that the stablecoin provider had cut the amount of commercial paper backing USDT by half.
“In the last six months, Tether has reduced 50% the size of the commercial papers . Everything that was reduced from the commercial paper was rolled into U.S. Treasuries,” he said.
In case you wondered, commercial paper is a type of security of large corporations to pay for short-term debt obligations.
So it seems that Tether is getting rid of the commercial papers and intends to rely on the cash instead. Or is it?
What is Tether doing to back up USDT peg to dollar?
As of now, Tether (USDT) is the industry’s largest stablecoin by market capitalization. And it is crypto #3 in the crypto world led by Bitcoin (BTC) and Ether (ETH).
USDT is pegged to dollar reportedly by backing by a variety of financial assets, including cryptocurrencies, loans, corporate bonds, precious metals, cash, and cash equivalents.
Tether’s latest formal attestation indicates that cash, cash equivalents, short-term deposits, and commercial paper make up 83.74% of all the Tether circulating on the market.
So, now you know the amount of USDT that is actually backed up by real life assets. Basically, if you own 1,000 USDT, it means that actually Tether can back up $837.4, the rest is pretty virtual.
It has been like this for a few years now. And nobody seems to worry too much. Up to a point while USDT is still pegged to dollar.
But in the last few days the epic crash of Terra’s UST – another popular stablecoin – made people rather curios about Tether’s backing.
Ardoino then took to Twitter claiming that USDT is not about to de-peg from US Dollar and is in general rather safe.
And now he mentions that Tether is making a substantial change in the USDT backing up.
Beyond outlining how the USDT backing had changed, Ardoino also highlighted how the ecosystem should move forward.
“In my opinion, what we would like to see is clear guidance on the type of disclosures,” he said.
“Everyone points at us and says ‘OK guys, you have to give everything to the public.’ At the same time, that would need to be true for everyone. Everyone needs use the same standards.”
Now why is what Ardoino said about USDT pegged to dollar matters?
Tether is famously opaque about its operations, and has repeatedly refused to subject itself to a public audit by a major accounting firm.
But there is something we know about USDT backing for sure. So we know around 84% of all Tether tokens on the market are backed up by real assets.
Of that figure, nearly 37% is made up of commercial paper and certificates of deposit. Treasury bills make up roughly 52%. The 37% figure is from December so, in light of Ardoino’s comments about a 50% reduction over six months. It’s unclear if Tether’s commercial paper holdings are now around 18.5% or some other amount.
Some media tried to reach Tether for comment on this matter. But the company didn’t provide an immediate response as to why the stablecoin’s backing has changed.
How is USDT different from other stablecoins?
Tether is no longer “the only big stablecoin” on the market, as we have Circle’s USDC that’s growing swiftly.
Both USDC and USDT are very different from decentralized and algorithmic stablecoins such as MakerDAO’s DAI and Terra’s UST.
MakerDAO’s DAI is an example of an overcollateralized algorithmic stablecoin. And Terra’s UST is an example of an algorithmic stablecoin without any backing other than several lines of code.
At the same time, USDT and USDC are pegged to dollar by backing their stablecoins either fully by other cryptocurrencies or via self-executing smart contracts.
A mortifying collapse of UST earlier this week brings up a question whether we should take any stablecoins seriously besides the ones that have some tangible support and substantial backing by real world assets.
