Crypto stablecoin Tether has long been in the crosshairs of critics who believe that it's only a matter of time before it goes bust, taking a chunk of the industry down with it. That has led to a lot of research and speculation with regards to Tether's backing, but according to a statement the firm released on Wednesday, a new round of rumors are just an attempt by "coordinated" funds to topple Tether that will hurt innocent retail investors.
In the blog, called "Tether Condemns False Rumours About Its Commercial Paper Holdings," the firm denies rumors that 85 percent of its holdings are commercial papers—a type of short-term debt—in China and Asia that are being traded at a 30 percent discount. Tether goes on to claim that these rumors are part of a "coordinated" attempt to generate profits from a failing Tether.
“These rumours are completely false and likely spread to induce further panic in order to generate additional profits from an already stressed market," the blog states. "Tether condemns such attempts which oftentimes see simple users take the biggest hit, while few coordinated funds increase their profits."
Tether is controversial because of the major role it plays in crypto markets as the top stablecoin used in trades and loans, because it is pegged to the U.S. dollar. It originally obscured the fact that it was run by the same people behind the Bitfinex exchange, and once claimed that its USDT token was backed 1:1 by dollars, although that story eventually changed to include other financial instruments. The idea is that if USDT loses its dollar peg, and a run on the token occurs where Tether is not able to fulfill redemptions due to a liquidity crisis, then that could tank prices elsewhere—hence, all the questions and rumors about its holdings.
Last year, Tether paid a $41 million fine to the U.S. Commodity Futures Trading Commission—the regulator for commodities—for making "untrue or misleading statements and omissions of material fact" about its reserves. Tether "held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," the CFTC said, adding that Tether co-mingled reserve funds with corporate and user funds, and held non-fiat instruments as reserves. At the time, Tether responded that "it has always maintained adequate reserves and has never failed to satisfy a redemption request" and that the CFTC had only found that "the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
Tether's latest blog also seeks to alleviate these concerns with a report dated March 31 from Tether's accounting firm in the Cayman Islands, which attests that "over 47% of total USDT reserves are now US Treasuries and that commercial paper makes up less than 25% of USDT’s backing," according to Tether. Its commercial paper holdings have been reduced from $20 billion to $11 billion, it said, and will eventually be zero.
Finally, the blog seeks to distance Tether from other disasters in the crypto-sphere, such as the Celsius lending platform that halted withdrawals and may be insolvent, and Three Arrows Capital, a crypto fund that also has rumors swirling around it that it may have been hit hard by the market downturn.
"Tether has currently zero exposure to Celsius apart from a small investment made out of Tether equity in the company," the blog states, adding that "Tether is aware of other rumours being spread, suggesting that it has lending exposure to Three Arrows Capital—again this is categorically false," and directing people to its own "transparency" web page for the "true facts."
In crypto, conspiracy and reality can easily bleed together. To borrow a favorite phrase from the crypto-world (originally from Cixin Liu's Three-Body Problem sci-fi trilogy), the cryptocurrency markets are a dark forest, filled with predators constantly seeking each other out. Although there have been some remarkable instances of cooperation at a distance, the general rule is: If you can be killed, you will, and someone will loot your corpse. There's no doubt that there are firms that are cheering for Tether's downfall, and may actually make some money off its failure.
But conspiracy and reality are not the same thing, and when crypto projects collapse, they usually don't need any outside help at all.