This week, Tether celebrates reaching $100 billion in circulation. However, the explosive growth of the largest stablecoin in the world has raised questions about possible threats to larger financial markets.
According to Tether, it maintains reserves denominated in dollars for each digital token it issues, ensuring that the token's value remains steady.
According to cryptocurrency dealers, to move money quickly in cryptocurrency without using the tightly controlled banking system, tokens are crucial.
Tether is essential to the company's daily operations. It is mostly used as a means of securely transferring cash between trading venues.
However, because stablecoins serve as a link between the conventional financial markets and the cryptocurrency world, regulators have long harbored concerns that rising stablecoin holdings could put the entire financial system at greater risk.
US regulators have alerted banks to the possibility of sudden withdrawals from stablecoin reserves, for example, if holders rush to convert these tokens back into conventional currency.
According to a Tether representative, their solutions add genuine value by making it possible for the billions of unbanked people worldwide to enter the global financial system when they previously couldn't.
The representative added that Tether has frozen hundreds of millions of USDT linked to illegal activity and actively collaborates with law enforcement and regulatory bodies worldwide to stop the illegal use of stablecoin technology.
Tether is dedicated to openness, stability, and sound financial management, according to a statement made by CEO Paolo Ardoino in January.
Tether is dedicated to openness, stability, and prudent financial management, according to a statement made by CEO Paolo Ardoino in January.
After the collapses that caused prices to plummet in 2022, the cryptocurrency markets have largely recovered. Due to enthusiasm around investments into US-spot bitcoin ETFs, bitcoin surged over 20% last week and reached a record high on Tuesday.
Tether is expanding quickly as well. It stated on Tuesday that almost $29 billion worth was produced in the previous year.
Wider impact
Asset-backed stablecoins are not posing a systemic danger, according to statements made before by the crypto lobby.
Yet, Rajeev Bamra, Director of DeFi and Digital Assets Strategy of Moody's Investors Service, noted that anything going wrong with Tether will ultimately affect those banking institutions because it now has reserves in conventional banking institutions valued at close to $100 billion.
About Tether's dominance in the cryptocurrency space, Bamra continued that he thinks the concentration risk in Tether is massive.
Tether received the second-lowest rating of 4 out of 5 from S&P Global Ratings in their stablecoin stability assessment from the previous year. The rating was based on the absence of details regarding Tether's counterparties, custodians, and bank account providers.
As part of a 2021 deal with the New York Attorney General's office, Tether consented to reserve reports on a quarterly basis.
According to Tether's most recent report, by the end of 2023, its reserves included $2.8 billion in bitcoin, $3.5 billion in precious metals, $63 billion in US Treasury bonds, $3.8 billion in other investments, and $4.8 billion in secured loans.
A reserve report is not the same as a comprehensive financial statement audit, according to Paul Brody, Ernst & Young's global blockchain leader.
In an interview last month, S&P Global Ratings analyst Rebecca Mun stated that while many jurisdictions are creating stablecoin regulations, Tether is not yet subject to particular oversight by a regulatory agency or restrictions over where or how it can invest its reserves.
Although it claims to be totally transparent on its website, Tether Holdings Ltd., a Hong Kong-registered business controlled by a British Virgin Islands-registered company, does not give information regarding where it keeps its reserves.
According to Hall, Nickel uses Tether "cautiously," weighing the convenience against the possibility that it will lose its dollar peg.
Cryptocurrency traders relying on Tether say that they gain confidence from Tether's past performance of maintaining its peg and processing redemptions totaling billions of dollars during turbulent times for the cryptocurrency market, like in 2022.
While there is always danger associated with investing, particularly in the erratic cryptocurrency market, Tether has a history of being a less risky choice when it comes to digital assets overall, according to Hall.