Jean Eaglesham of Wall Street Journal and Vicky Ge Huang of Wall Street Journal suggested that Tether’s “thin cushion” could lead to market chaos if its liabilities outweigh its assets. According to the Wall Street Journal (WSJ), Tether’s balance sheet could be insolvent if its reserve assets lose 0.3%.
Jean Eaglesham and Vicky Ge Huang , WSJ journalists, focused on cloudy Tether’s ( UST ) reserves and the long-awaited audit.
Huang and Eaglesham suggested that a thin cushion of equity could cause market chaos if Tether’s assets were to exceed its liabilities.
Tether could be technically insolvent if assets fall by 0.3%. Skeptics fear this could cause investor anxiety and increase redemptions. Tether currently has assets worth \$67.74 billion and liabilities worth \$67.54 billion at the time of writing. This is a difference of only $191 million according to Tether’s website.
Paolo Ardoino, chief technology officer at Tether, has however played down the severity Tether’s tight margins. He told the publication that he expects Tether’s capital “to grow significantly over the next couple of months.”
“I don’t believe we are at systemic risk in [the Crypto] system,”
Ardoino pointed out that the company has never had any problems redeeming customer funds and was able to redeem \$7 billion in 24 hours following a recent cryptocurrency market crash.
Tether currently claims that 79.62% are backed with cash, cash equivalents and other short-term deposits as well as commercial paper. The remaining 8.36% is made up of unspecified investments, including digital tokens and 6.77% in secured loan, and 5.25% corporate bonds, funds and precious metals.
According to the report, Ardoino declined to comment on Tether’s $5.6 billion worth other investments.
Tether’s reserve nature has been a key story in crypto space due to its market dominance and the firm’s dealings over past misrepresentations about Tether’s backing.
Tether must publish quarterly reports to show the exact composition of its cash and other non-cash reserves as part of the \$18.5million settlement with the Office of the New York attorney General in February 2021.
Ardonio also stated to the WSJ that monthly reports will soon be available as part of the company’s efforts to provide greater transparency.
Tether hired BDO Italia, a major accounting firm, to help it achieve its reporting transparency goals by cond performing independent attestations. Tether is yet to have a complete audit of the company that would examine its financials and reveal the full scope.