A Look at the Reserve Statements That Tether Tried to Conceal

By Nicholas Morgan

The reserves backing USDT, a U.S. dollar-pegged stablecoin issued by Tether, once included assets belonging to Chinese companies, documents from the New York Attorney General's Office revealed. 

In documents obtained as part of the attorney general’s investigation into Tether in 2021, long-running suspicions that Tether’s USDT stablecoin was backed by Chinese securities were confirmed. According to an investigation by Bloomberg News in October 2021, Tether held billions in short-term loans to Chinese companies.

These documents were first obtained from New York’s attorney general following a freedom of information request filed by CoinDesk. Decrypt has also obtained a copy of those documents from the attorney general’s office. 

Last July, Tether rejected claims that up to 85% of its commercial paper portfolio was backed by short-term debt issued by Chinese or Asian companies. The latest documents show that Tether did indeed rely on some Chinese securities to back USDT, including debt issued by the Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd.

According to the documents, Tether also held securities issued by other foreign businesses, including Deutsche Bank and Barclays Bank to support its reserves. 

Tether’s USDT is  largest stablecoin by market capitalization, with a total valuation of $83,521,892,618, and its 24-hour trading volume stands at $17,019,479,905, according to data from CoinGecko. Following Bitcoin and Ethereum, it is the third most traded token in circulation.

In a tweet, Tether's chief technology officer Paolo Ardoino said the documents proved its critics wrong on claims, such as it lacking a bank account. On the Chinese securities, Ardoino asserted that the documents vindicated Tether in the face of “a few clowns” who accused it of holding onto debt from the distressed Chinese property developer Evergrande.

"Remember when all Tether detractors tried to convince the crypto community that Tether was backed by 70% of Evergrande," said Ardoino. 

These documents stem from an investigation by New York Attorney General Letitia James back in April 2019. 

Her office at the time was investigating whether crypto exchange BitFinex was hiding as much as $850 million in losses from investors, including about $700 million in Tether reserves as part of what James called BitFinex’s “slush fund.”  The case was settled in February 2021, and the two were barred from conducting business in New York. 

Initially, Tether resisted attempts to get access to the investigative documents from that case, but relented on June 15. In a statement on the company blog, Tether said it dropped its opposition to the request on what it said were transparency grounds. The company also said it was monitoring markets after alluding to collusion among others in the industry against it.

“We find it suspicious that today’s attack on USD₮ via both DeFi and centralized exchanges occurred on the day that materials were handed over to CoinDesk. This timing raises questions," read the blog. 

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