Up until now, the stablecoin Tether has enjoyed the status of a banking institution in the crypto industry and was used to maintain the ecosystem. The crash of the Terra stablecoin UST is now also putting Tether under increasing pressure.

The Guardian calls it a "slow-motion bank run" that the multi-billion dollar stablecoin Tether is currently seeing. Since the crypto crash began in early May 2022, more than ten billion US dollars have already been "withdrawn" or converted back into dollars.

The total amount returned so far is now supposed to match about one-eighth of the company's claimed total reserve. The "withdrawals" had accelerated after the Terra UST crash, which observers also attribute to a Tether statement from the end of March.

At an earlier stage, Bitfinex had provided updated information on the composition of its reserves. Bitfinex is required to update this information on a quarterly basis. It is part of a deal with the New York State Attorney General. The attorney had challenged the statement that each Tether was backed by one US dollar and wanted to prove it.

In response, the company had admitted that this claimed collateralization was not always the case. Instead, the tether was covered by "Tethers Reserves". These now have to be specified in more detail once a quarter, which is of course closely monitored in times of crisis.

The latest statement claims that Tether is storing about $20 billion in money market securities, $7 billion in money market funds and nearly $40 billion in US Treasury bills. However, another seven billion dollars is stored in "corporate bonds, funds and precious metals" and in "other investments (including digital tokens)". Although this proportion seems to be small for now, it would certainly lead to a situation in which the Tether is not "fully secured" in the event of a crash.

While retail investors can buy or sell Tether on cryptocurrency exchanges, institutional investors can also simply pay money directly to Tether to receive newly minted tokens. Alternatively, they can return their tokens to the company in exchange for cash. Considering these facts, we at BocasDAO would rather continue to back our NFT with real assets. 😉

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