Tether Reduces Commercial Paper Holdings

Tether's CTO Paolo Ardoino announced that Tether has cut their holdings of commercial paper since December of 2021, and now holds the majority of its reserves in U.S. Treasuries.

Tether (USDT) is a reserve-backed stablecoin that aims to be pegged 1:1 to the U.S Dollar. Earlier this week, it dropped as low as 95 cents according to CoinMarketCap data and is now sitting at around 99 cents.

Stablecoins are designed to be protected from the volatility of market swings from digital assets. Many will transact and convert their Bitcoin and other cryptocurrencies to stablecoins like USDT in order to hold profits made from trades.

Ardoino did not provide specific details as to what extent the reserves are in commercial paper, but said it is “still going down” and that a quarterly update on its reserve status will be available later in the month.

Joseph Abate, managing director, fixed income research, at Barclays said the concern among investors is that in the event of a digital bank run, Tether might be forced to sell its holdings in order to meet redemptions.

Abate believes that money market investors are cautious because if Tether is pushed to sell its CP (commercial paper)  and CD (certificate of deposit) holdings in these illiquid markets, funds could lock up again as they did in March of 2020.

Figures from December 2021 show that Tether is holding $24 billion in CPs, which is 31% of its total funds. Abate recognizes that liquidity fears may be premature because the largest chunk of Tether's holdings are in liquid Treasury bills sitting at around 44% of the treasury. There are also other short-term assets in the fund that are liquid and can be easily sold the same day if needed.

The Tether team also mentioned on May 12th that it continues to respect redemptions normally and continues to honor hundreds of millions of redemptions.