Tether does not wish to follow in the footsteps of the UST – Stablecoins have been at the center of the conversation since the sudden demise of the Terra Luna UST last week. Other stablecoins, like USDT, have drifted away from their dollar benchmark in response to the severity of the event. A worrying circumstance that prompts Tether to increase its reserves.
The quality of Teher’s reserves is improving.
There are two major families of stablecoins in the bitcoin ecosystem. On the one hand, there are centralized stablecoins like USDT and USDC. They are issued by a corporation and are supported by dollar reserves.
On the other hand, there are algorithmic stablecoins, which contain cryptocurrency reserves.
Tether announced numerous initiatives targeted at enhancing the quality of its reserves in response to the recent decrease of the UST and the increase in volatility of the USDT.
For example, in the first quarter of 2022, the corporation lowered its commercial paper holdings by 17%, from $24.2 billion to $20.1 billion. Furthermore, the corporation intends to cut these commercial papers by a further 20% during the second quarter of the year.
Simultaneously, the corporation raised its holdings of money market funds and US Treasuries by 13%, from $34.5 billion to $39.2 billion.
Tether’s reserves are worth over $82 billion in total, for a USDT market capitalization of $74 billion. However, the corporation only keeps around 5% of its bank deposit reserves.
The Question of Reserve Quality
These increases in Tether reserves came a few months following disputes about the latter’s quality.
Indeed, our Bloomberg colleagues disclosed in October that a major portion of Tether’s commercial paper assets had been issued by Chinese corporations. As a result of the lack of openness around the identification of the corporations involved, numerous experts questioned the quality of these reserves.
The Terra Luna UST, for its part, is in a poor situation. The ecosystem’s failings continue to have serious consequences. Terraform Labs is experiencing an increase in resignations.