Size of Tether’s reserves causes jitters

• Updated

Tether’s reserves have been under scrutiny from the authorities

Tether’s logo against digital-style backdrop                                 
Tether’s reserves are causing controversy – Photo: Shutterstock


There has been a fair bit of controversy lately over the Tether stablecoin. The crypto has attracted attention and concern about how it’s backed, who is doing the backing, and whether it is sustainable. In this article, we will take a look at what is going on with Tether, which is especially important considering the depegging of 12 May, which saw its price drop to $0.95.

Although the coin has recovered to just under $1, it has not been at full parity since before the depegging. There was also a slight moment of concern on 18 June 2022, when it survived a DDOS attack by hackers. 

What is Tether (USDT)?

Tether (USDT) is what is called a stablecoin. This means it is designed to be pegged to the dollar, so it constantly maintains a value of $1. Every unit that is in existence is fully backed by traditional currency that is held in reserve. 

Do not let this stability fool you into thinking that the coin is dull, though. So far this year, we have seen the number of people investing in the coin, and the overall market cap of the Tether cryptocurrency, explode.

The size of the Tether stablecoin went up by more than 250% in 2021, surging from a market cap of $21bn on 1 January to around $75bn on 6 October. The stablecoin has almost consistently managed to rank as the world’s third-largest cryptocurrency behind Bitcoin and Ether. It is also the undisputed market leader when it comes to stablecoins, and is streets ahead of rivals such as USD Coin, Gemini Dollar and DAI.

Now that we have answered the question “What is USDT?” we will tell you how it works, or at least how it is supposed to work.

How USDT works

So, USDT is the biggest stablecoin there is. What makes it somewhat controversial is how it is backed.

People take their money and give it to Tether Holdings, which gives them USDT in return. If the trader is working with the US dollar, it should, in theory at least, be a straight swap of fiat dollars to crypto USDT. As for the company behind the coin, it holds on to the money it is sent in case someone wants to swap their stablecoin back for fiat. At least, that is what it is supposed to do. 

The problem arises because there is no real consensus as to who backs USDT. This was not necessarily a problem in the eyes of crypto traders, though. As long as they were able to swap their fiat for the stablecoin, it did not matter. Often, the stablecoin was used to facilitate other crypto deals, so the matter of exchanging it back to fiat currency was something of a moot point. 

What changed things was the crypto boom of early 2021. As more and more cryptocurrencies became more and more valuable, and there was an ever-increasing number of people dealing with crypto, stablecoins became less of a curiosity and more of a useful tool. Tether got in on the action and, out of the $67.92bn USDT currently in circulation, the majority has been minted since the start of 2021.

Because the cryptocurrency is tied to the value of the dollar, that should mean that, somewhere, there is $67.92bn that exists purely to back the cryptocurrency. The problem is, no one is entirely sure whether this money exists and, if so, where it is and who is looking after it.

Does Tether have reserves? Yes. How much reserves does Tether have? Well, it says there is $67.92bn backing it up, but this has been the subject of some controversy.

USDT/USD price history

Date Close Change Change(%) Open High Low
Oct 4, 2022 1.0003 0.0000 0.00% 1.0003 1.0003 1.0002
Oct 3, 2022 1.0003 0.0000 0.00% 1.0003 1.0006 0.9998
Oct 2, 2022 1.0003 0.0001 0.01% 1.0002 1.0004 0.9980
Oct 1, 2022 1.0002 -0.0001 -0.01% 1.0003 1.0003 1.0000
Sep 30, 2022 1.0003 0.0001 0.01% 1.0002 1.0006 1.0000
Sep 29, 2022 1.0002 0.0001 0.01% 1.0001 1.0014 0.9999
Sep 28, 2022 1.0001 -0.0014 -0.14% 1.0015 1.0017 0.9972
Sep 27, 2022 1.0015 0.0009 0.09% 1.0006 1.0019 0.9971
Sep 26, 2022 1.0006 -0.0009 -0.09% 1.0015 1.0018 0.9999
Sep 25, 2022 1.0015 0.0010 0.10% 1.0005 1.0018 1.0001
Sep 24, 2022 1.0005 0.0002 0.02% 1.0003 1.0017 0.9999
Sep 23, 2022 1.0003 -0.0005 -0.05% 1.0008 1.0017 0.9999
Sep 22, 2022 1.0005 0.0001 0.01% 1.0004 1.0011 0.9999
Sep 21, 2022 1.0004 0.0003 0.03% 1.0001 1.0007 0.9999
Sep 20, 2022 1.0001 -0.0002 -0.02% 1.0003 1.0008 1.0000
Sep 19, 2022 1.0003 0.0003 0.03% 1.0000 1.0005 0.9999
Sep 18, 2022 1.0000 -0.0001 -0.01% 1.0001 1.0001 0.9980
Sep 17, 2022 1.0001 0.0002 0.02% 0.9999 1.0001 0.9998
Sep 16, 2022 0.9999 0.0000 0.00% 0.9999 1.0000 0.9997
Sep 15, 2022 0.9999 -0.0002 -0.02% 1.0001 1.0003 0.9998

Tether reserves

$67.92bn is a lot of money. Theoretically, it should be somewhere, but no one knows exactly where. An investigation by Bloomberg drew a blank, although the financial news site was able to speak to the chairman of a bank that did business with Tether.

Jean Chalopin, of Bahamas-based Deltec Bank & Trust, defended Tether, saying: “There’s no agenda or plot. They are not Enron or Madoff. When there’s a problem, they fix it honourably.”

Chalopin, who first found fame as one of the creators of the 1980s cartoon Inspector Gadget, said the money behind USDT was real when his bank started doing business with the stablecoin in 2018, adding: “Frankly, the biggest thing was at the time, ‘The money doesn’t exist’. We knew the money exists! It was sitting here.”

However, Chalopin said that around $15bn of the Tether reserves was with Deltec at that time, adding: “I cannot speak about what I cannot know. I can only control what’s with us.”

Bloomberg also found that Tether had invested in several Chinese companies. The news service said: “If [Tether CFO Giancarlo] Devasini is taking enough risk to earn even a 1% return on Tether’s entire reserves, that would give him and his partners a $690m annual profit. But if those loans fail, even a small percentage of them, one Tether would become worth less than $1. Any investors holding Tethers would then have an incentive to redeem them; if others did it first, the money could dry up. The bank run would be on.”

The article also quoted Devasini’s lawyer, Stuart Hoegner, as saying: “We maintain a clear, comprehensive and sophisticated risk management framework for safeguarding and investing the reserves.”

Janet Yellen
US Secretary of the Treasury Janet Yellen chaired a meeting about stablecoins – Photo: Shutterstock

Pressure builds

In October 2021, Tether agreed to pay $41m after the US Commodities Future Trading Commission (CFTC) accused it of not being able to back up the crypto with cash, saying it only had reserves to fully back tokens in circulation for 27.6% of the days between September 2016 and November 2018.

It is worth noting, though, that Tether neither confirmed nor denied the claims made against it. It argued that the commission had found historical problems, saying in a statement: “There is no finding that Tether tokens were not fully backed at all times – simply that the reserves were not all in cash and all in a bank account titled in Tether’s name at all times. As Tether represented in the Order, it has always maintained adequate reserves and has never failed to satisfy a redemption request.”

It added: “This inquiry arose during a markedly different time in our ecosystem, and focused on the same types of challenges that many in our industry faced at the time. As many companies around the world do, Tether agreed to resolve this matter in order to move forward and focus on the future. We are grateful that the market has consistently demonstrated its trust and confidence in Tether.

“We will continue to earn that confidence and lead the industry in innovation and transparency.”

In April 2022, Tether announced that it was to reduce the amount of commercial debt in its reserves. CTO Paulo Ardoino told CNBC: “Over time we will keep reducing the commercial paper, we aren’t finished yet with the reduction.”

Earlier in 2021, Monsur Hussain and Alastair Sewell of ratings agency Fitch said that “potential asset contagion risks linked to the liquidation of stablecoin reserve holdings could increase pressure for tighter regulation of the nascent sector”, and also reported Boston Federal Reserve president Eric Rosengren as saying stablecoins could “easily” trigger a financial crisis unless more regulation was in place. 

In the United States, the President’s Working Group on Financial Markets, chaired by US Treasury Secretary Janet Yellen, met in the summer of 2021 to discuss issues concerning Tether and other stablecoins.

In a statement, the working group said: “In the meeting, participants discussed the rapid growth of stablecoins, potential uses of stablecoins as a means of payment, and potential risks to end-users, the financial system, and national security. The Secretary underscored the need to act quickly to ensure there is an appropriate US regulatory framework in place.

“The group also heard a presentation from Treasury staff on the preparation of a report on stablecoins, which would discuss their potential benefits and risks, the current US regulatory framework, and the development of recommendations for addressing any regulatory gaps. The President’s Working Group expects to issue recommendations in the coming months.”

In November 2021, the working group suggested that stablecoins’ issuers should be insured depository institutions, custodial wallet providers should be subject to federal oversight and that stablecoins should limit their affiliations with commercial entities. 

It is also worth noting that a group of American congresspeople called for stablecoins to be subject to banking charters before being allowed to trade in 2020. In a statement, group member Rashida Tlaib said: “From the OCC to the Federal Reserve to those peddling stablecoins, the protections the STABLE Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation.”

Perhaps more notably, the US Department of Justice was reported to be holding an investigation into Tether. Bloomberg wrote that the DoJ was looking into whether Tether executives committed bank fraud during the early years of the coin’s life.

Bloomberg reported that three people with knowledge of the matter had said the investigation centred on whether Tether had concealed from banks that transactions were linked to crypto. We asked the Department of Justice if they were able to comment on the report, but did not receive an immediate reply.

A spokesman for Tether said at the time: “Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency.”

“Tether routinely has open dialogue with law enforcement agencies, including the DoJ, as part of our commitment to cooperation and transparency.”

We also asked Tether to comment on the coin’s reserves and whether it had a response to the working group, but have not yet received a reply. 


How many Tether coins are in circulation?

There are $67.92 Tether stablecoins in circulation as of 20 June 2022.

Is Tether a good investment?

It is hard to say if USDT is a good investment or not. The point of the crypto is to stay at around $1, while offering people a stablecoin to trade with. There are also some concerns over what is backing the coin. That’s not to say you should not invest in it, just be cautious.

How to buy Tether

If you want to buy USDT, you can do so at Just remember to do your own research and never invest more than you can afford to lose. 

Further reading

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