29th June 2022 > > US Tether.

tl;dr

US Tether (USDT) should come clean about its assets.

Market Snap (at time of writing)

Market Wrap

The sabre rattling in the press yesterday morning finally hit risk assets in the afternoon, culminating in BTC breaching $20k to the downside again in the last hour.

Occasional Series – The Milk Road is a very funny newsletter

Curious Cryptos’ Commentary – Right to reply

In yesterday’s CCC, I commented in relation to Ripple (XRP) that:

“I am not involved, and I do not know very much about the situation – with so many lawyers, and courts active in this case, I am not going to speculate about the outcome. Though I do note that Brad Garlinghouse, CEO of Ripple Labs Inc., has stated that if they lose the case, Ripple Labs Inc. will leave the US and move elsewhere.

Someone should tell Brad that threatening the US government, US law courts, and US regulators, is not a good look.”

Dr. Chloe – a long term and vocal supporter of the CCC who remarkably has her own CCC – has exercised her right to reply:

“How is stating he will leave the US a threat (to anyone)? The regulators are suing him, the courts are possibly not weighted in his favour. He is being bullied, and he can take his business anywhere he likes. If the US wanted him there they wouldn’t have launched a multimillion/billion dollar court case against him. Period. You can put that in your next piece!”

Curious Cryptos’ Commentary – US Tether (USDT)

On the 9th October 2021 and 12th March 2022, the CCC has explored and has been critical of the first and one of the most successful stablecoins – USDT.

This criticism can be summarised as follows:

- Paolo Ardoino, CTO of Tether, stated publicly that transparency was very important to the company, and to investor belief in the USD peg, but the company has been anything but transparent.

- The choice of auditor, Moore Cayman, based in the Cayman Islands, does not inspire confidence in the same way that hiring a well-known, reputable, onshore auditor would.

- The company had always claimed that its reserves were all in cash, but when the auditors finally released details of the reserves, 66% was in commercial paper (CP) of unknown quality and duration.

- The company has admitted that some of that CP was loans to Chinese companies with cryptos as collateral, probably the worst credit financing decision I have ever seen after 25 years working for investment banks in debt markets.

- The company has refused to give further details of the CP, though it claims that the total has been dramatically reduced and will go to zero in the coming months.

Paolo has claimed that hedge funds have been shorting USDT into the billions to create liquidity pressure to break the peg, to buy it back at a much lower price.

That may well be very true.

But there is one very easy way to resolve the situation.

If the reserves backing USDT really are more than its liabilities and can be considered cash or cash equivalents (e.g. 2-year treasuries), then a detailed statement of all those reserves, signed off by a mainstream auditor, would make the short sellers close their positions immediately.

There can only be one reason why that course of action has not been taken.