Tether promises to stop the practice of lending funds from its reserves “to restore faith” in the crypto market
The recent media FUD regarding the reserves of crypto-related firms has hit the world’s largest stablecoin issuer, Tether, as well. Thus, the company tried to appease its investors with the announcement that it was going to gradually reduce secured loans in Tether’s reserves to zero.
The full stop to the practice is expected somewhere in 2023. However, the company claims that even now the secured loans held in its reserves are overcollateralized and covered by extremely liquid assets.
Tether’s secured loans work just as traditional collateralised private banks’ lending. Although the stablecoin issuer claims its loans are over 100% backed, a recent Wall Street Journal report suggested Tether “may not have enough liquid assets to pay redemptions in a crisis.”
Moreover, WSJ has previously noted that Tether’s “thin cushion of equity” could cause market tumult if the liabilities of the most valuable stablecoin outweighed its assets.
Tether has continuously addressed the media FUD by hiring the BDO Italia accounting firm, eliminating commercial paper from its reserves and replacing the investments with U.S. Treasury bills. Winding up the lending business might leave Tether without a good profit source, but the company is determined to prioritize “transparency, accountability and operational excellence above all else”.