According to a Wall Street Journal (WSJ) report, Tether’s balance sheet is in a situation where merely a 0.3% decline in the value of its reserve assets may “render Tether technically insolvent.”
According to Tether’s website, at the time of writing, it has assets of $67.74 billion and liabilities totaling $67.54 billion, a $191 million discrepancy.
Analysts predict insolvent risk Tether faces
The murky nature of Tether’s USDT reserves and its much anticipated audit, which has been in the works since 2017, were the main topics of a new article by WSJ journalists Jean Eaglesham and Vicky Ge Huang.
“A 0.3% fall in assets could render Tether technically insolvent — a development that skeptics warn could reduce investor confidence and spur an increase in redemptions,” the authors wrote.
According to Eaglesham and Huang, such a “thin cushion of equity” might generate market havoc if Tether’s liabilities outweighed its assets.
Tether CTO Paolo Ardoino, on the other hand, downplayed the severity of Tether’s tight margins, telling the outlet that he expects the company’s capital to rise dramatically in the coming months, saying: “I don’t think we are the systemic risk in [the crypto] system.”
The company has never had any trouble recovering customer funds, and after a recent crypto market crisis, it was able to return $7 billion in just 24 hours, according to Ardoino.
Given the market dominance of its stablecoin and the company’s interactions with regulators over alleged misrepresentations of Tether’s backing in the past, the nature of Tether’s reserves has been a long-running and important narrative in the cryptocurrency industry.
According to information on Tether’s website, cash, cash equivalents, other short-term deposits, and commercial paper now make up 79.62% of the company’s reserves. The balance comprises secured loans worth 6.77%, unnamed digital tokens worth 8.36%, and corporate bonds, funds, and precious metals totaling 5.25%.
Ardoino refuses to comment on what Tether’s $5.6 billion in other investments are made of, according to the report.
Attempt for better transparency
Ardonio also told the WSJ that the company will soon transition to monthly reporting as part of its effort to increase openness.
Tether is legally required to publish quarterly disclosures detailing the particular composition of its cash and non-cash reserves as part of an $18.5 million settlement with the Office of the New York Attorney General in February 2021.
Tether hired the renowned accounting firm BDO Italia earlier this month to help it achieve its goals for reporting transparency through independent attestations. The company has not yet undergone a thorough audit that would delve deeper into its finances and reveal the full breadth of its operations.