(Kitco News) - After a year of high-profile collapses and market-wide contagion effects, crypto holders have come to expect bad news and black swan events, with many pointing to the controversial stablecoin issuer Tether as the next calamity to watch out for.
In reaction to rumors of its eminent demise – which have been amplified by a recent report released by the Wall Street Journal (WSJ) – Tether has responded by saying that its secured loans are actually overcollateralized.
"Recently, the WSJ published an article calling into question Tether's secured loans and insinuating that they may pose risks to Tether's redeemability," the firm said in its statement. "The article had many misconceptions of Tether and USD?, the most glaring of which was the claim that because Tether's secured loans of USD? were denominated in USD?, Tether was exposed to a decline in the value of USD?."
"This completely misses the mark and mistakes the USD? itself for the collateral that underpins it," the stablecoin issuer said. "Tether's secured loans are extremely overcollateralized and even backstopped by Tether's additional equity if needed."
The WSJ highlighted the fact that Tether has yet to disclose its USDT stablecoin-issued loans and questioned the company's ability to honor longer-term redemptions. The newspaper hypothesized that the decline in prices across the market could have diluted Tether's collateral.
"The big declines in crypto markets, exacerbated by the recent bankruptcy filing of cryptocurrency exchange FTX, mean that some collateral held by Tether could be worth less than it was when the loans were made," the WSJ said.
In response to this line of thought, Tether said that its "reserves remain well-positioned to navigate through this turbulent period in the traditional financial markets since investments are predominantly short term. Tether's reserves overwhelmingly maintain their value and liquidity independently from any drawdowns in the financial markets or in crypto/digital asset prices."
To help support this statement, the company noted that 82.45% of the total Tether reserves are in US Treasuries and other cash equivalents "whose yields are at multi-year highs."
"Between the high level of liquid overcollateralization, [...] a growing equity cushion for an increasing rate environment and Tether's precise and thorough risk management, it is rather difficult to think of a scenario where secured loans present a risk to Tether's ability to redeem USD? tokens," the firm said.
Tether also noted that a decline in the price of USD? is only a representation of its current exchange value on the open market and wouldn't impact its redemption value for the underlying collateral.
The company also used the response to go on the offensive, calling out media outlets and critics for focusing on Tether and missing the numerous high-profile blowups that had gotten a free pass prior to their demise.
"How many of Tether's entrenched critics warned about FTX, Alameda, BlockFi, Genesis, Celsius, 3AC, or Terra, just to mention a few?" Tether asked. "Critics and media outlets have spent years criticizing, investigating, and warning against the purported "ever impending" failure of Tether, yet they were completely asleep at the wheel as a hugely significant portion of the crypto industry imploded due to irresponsible leverage, outright fraud, and regulatory arbitrage."
Tether noted that this fact has significantly diminished the credibility of these outlets, which is a sentiment held by many in the crypto ecosystem.
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"While many companies, including some public ones, YOLOed into lending programs based on pinky swears, Tether keeps educating the market and even Wall Street's Old guard on risk management," the company affirmed.
In closing, Tether directly addressed the concerns laid out in the WSJ article by saying that it "is professionally managing its reserves because it's committed to guarantee any clients' redemption with the same liquid reserves that are reported in the Transparency page in the CRR report."
"Tether is profitable and will remain solvent even in critical scenarios. Tether is not gambling clients money but is and has been accurately managing its reserves and does not apply fractional reserve," the firm said.
