Tether abandons commercial paper reserves in favor of Treasury bills

“The safest reserves“

Tether has made good on its promise to abandon commercial paper. The leading stablecoin issuer announced today that it has eliminated commercial paper from its reserves and replaced the funds with U.S. Treasury bills. According to the company, this decision was made in order to back its USDT tokens with “the safest reserves in the market.“

Tether’s plan to reduce its commercial paper reserves was originally announced in May. Since then, the company has steadily decreased its commercial paper reserves every two months, often by billions of dollars at a time.

Stablecoins are crypto-currencies designed to remain at parity with a government-issued currency, such as the dollar or euro. Tether is the largest stablecoin issuer in the world; with a market capitalization of $68.3 billion, USDT is currently the third largest currency after BTC and ETH. Rival centralized stablecoins, USDC and BUSD, come in fourth and seventh, respectively, with market capitalizations of $45.6 billion and $21.6 billion.

Tether’s website currently states that nearly 80% of the company’s reserves consist of cash equivalents and short-term deposits. Of these cash equivalents, 12.88% are invested in money market funds, 10.25% are bank deposits, 5.66% are in the form of reverse repurchase agreements, and 0.75% are non-U.S. Treasury bills. U.S. Treasuries represent 54.57% of Tether’s cash equivalents. The remaining 15.89% is attributed to commercial paper. Once the website is updated to reflect Tether’s new reserve mix, the company’s U.S. Treasuries could account for as much as 70.46% of its cash equivalent reserves, or about 56.3% of its total reserves.

Does it matter?

Tether’s latest report is part of the stablecoin issuer’s ongoing efforts to increase the transparency of its procedures after being hit by multiple waves of fear, doubt and uncertainty surrounding the state of its reserves. Dubbed “Tether truthers” by the rest of the crypto industry, critics have repeatedly argued that, by its sheer size, the company poses an existential threat to crypto and the broader financial system.

Concerns around Tether have been hard to quell. From 2017 to 2022, the company had its reserves audited ten times by six different agencies, but that did little to quell negative rumors. In August, Tether pledged to conduct a full audit after a Wall Street Journal article criticized the company for not yet conducting a “audit that amounts to a colonoscopy of the company“.

While USDT has lost its $1 peg in the past, the token has always quickly regained its value, even under heavy pressure. During the market turmoil caused by Terra’s implosion in May, Tether was able to buy back more than $8 billion worth of USDT without encountering major problems.

Will ever-increasing transparency and full audits be enough for Tether to remove doubts about the state of its reserves? Not at this time, but hopefully it will.