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Tether Falls Against Dollar as Crypto Selloff Deepens; CTO Reassures on Backing

Cryptocurrency May 12, 2022 02:57AM ET
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© Jakub Porzycki via Reuters Connect

By Geoffrey Smith

Investing.com -- The world's biggest stablecoin fell below its notional peg of 1:1 against the dollar on Thursday as the global selloff in cryptocurrencies deepened.

Tether dipped as low as was trading at 93.35 cents in early trading in Europe - over 6.5% below its peg - but recovered most of its losses after Tether's chief technology officer Paolo Ardoino repeated reassurances over the quality of its backing.

"Reminder that tether is honoring USDT redemptions at 1$ via tether.to," Ardoino said via Twitter. He added that over $300 million of stablecoins had been redeemed in the last 24 hours "without a sweat drop."

Reuters also reported Ardoino as saying on a Twitter (NYSE:TWTR) Spaces chat that the majority of Tether's reserves are now held in risk-free U.S. Treasuries. A report issued in May 2021 by Bitfinex showed that only 2.9% of Tether was actually backed by cash, while just under half its reserve was backed by commercial paper. Ardoino said the share of commercial paper has been reduced in the meantime but didn't say by how much. An updated statement of its reserves will be available later this month, he added.

There was no immediately obvious explanation as to why investors would be prepared to sell their Tethers at a discount. However, the crypto space has been shocked in the last couple of days by the collapse of TerraUSD, the world's third-largest stablecoin, and the LUNA token that is connected to it.

In contrast to TerraUSD, Tether owner and issuer, the Bitfinex crypto exchange, has always argued that Tether is completely backed by dollar reserves. TerraUSD's value, by contrast, is ultimately backed by a reserve composed largely of Bitcoin, which has slumped to a 17-month low this week.

Tether is most widely used as a vehicle for parking funds as crypto enthusiasts switch their holdings between various digital currencies. This avoids the higher transaction fees that are generally payable when crypto is exchanged back into fiat currency. Tether has a market capitalization of over $80 billion and is by far the largest of the world's stablecoins, despite losing market share to USD Coin and, in recent months, TerraUSD.

Global financial regulators have expressed concern in the past that stablecoins, which are an essential part of the global cryptocurrency universe, may not be able to honor their promises of constant asset value.

Last year, Bitfinex settled a dispute with the New York Attorney General's office over the composition of its reserves. New York Attorney General Letitia James said at the time, "Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie."

In addition, the Commodity Futures Trading Commission fined Tether and Bitfinex over $42 million in October last year for misleading investors about Tether's reserves in the past.

"From at least June 1, 2016, to February 25, 2019, Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not 'fully-backed' the majority of the time," the CFTC said at the time.

Tether Falls Against Dollar as Crypto Selloff Deepens; CTO Reassures on Backing
 

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Comments (7)
Ja Grew
Ja Grew May 12, 2022 7:29AM ET
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Not backed by cash means you can not sell them as such and have to swap it with some other tangible coin like ETH or BTC. A guy told about money buy-sell story> I guess he was right cryptocurrency is just a fluke.
gab nea
gab nea May 12, 2022 6:43AM ET
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lies and misleading statements huh, the manipulated coins are showing their true color. are they republicans too?
Warren Kaplan
Warren Kaplan May 12, 2022 6:08AM ET
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ponzi unravels......
jason xx
jason xx May 12, 2022 5:45AM ET
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So if they government says tethers reserves are not backed by cash what are they saying happened to that cash?
Aldo Elam Majiah
Aldo Elam Majiah May 12, 2022 4:53AM ET
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next: tether
Pip Eater
Pip Eater May 12, 2022 3:26AM ET
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this could end badly
jason xx
jason xx May 12, 2022 3:26AM ET
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It could end bigly
Pip Eater
Pip Eater May 12, 2022 3:26AM ET
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the end is near
Ty VM
2ADV May 12, 2022 3:26AM ET
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No dont say that
 
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