Is Tether a Risky Asset?
Tether in the News
Tether is a fiat-collateralised stablecoin that seeks to maintain a stable value of one US dollar per Tether, in the case of its most popular cryptocurrency (USDT). It allows users, such as investors and exchanges, to deposit US dollars for an equal amount of Tether. A stablecoin is commonly defined as a cryptoasset that is pegged to a target value through a stabilization mechanism, such as redemptions for the underlying asset it aims to be pegged to.
There is nearly $70 billion Tether outstanding today. While Tether discloses its reserves breakdown on its website, there are concerns about the risk involved in holding instruments other than cash. As of June 30, 2021, roughly 49% of its reserves comprised of commercial paper and certificates of deposit, which some suspect could be comprised of risky Chinese debt from issuers such as Evergrande, or issuers that could be impacted if Evergrande defaults. In its defense, Tether has said it does not hold any commercial paper or debt issued by Evergrande and notes the vast majority of the commercial paper it holds is in A-2 and above rated issuers, which are generally deemed to be non-risky issuers.