Tether's $69 Billion Reserve Mystery: Investments in Chinese Commercial Paper, Executives Facing Criminal Investigation
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Tether's $69 Billion Reserve Mystery: Investments in Chinese Commercial Paper, Executives Facing Criminal Investigation
According to a document obtained by Bloomberg Businessweek, which reveals detailed accounts of Tether Holdings Ltd.'s reserves, it includes billions of dollars in short-term loans provided to several major Chinese companies.
Navigating Web3 tides with focused insightsBloomberg Businessweek has released a cover article titled "Tether's $69 Billion Mystery," pointing out that Tether experienced exponential growth this summer and currently has 69 billion Tether tokens in circulation. This implies that Tether Inc. should hold an equivalent $69 billion in assets as backing—making it large enough to rank among the top 50 banks in the United States.
However, for years, despite Tether's claims of being fully backed, the nature of its reserves has remained a mystery. Below are the five main points from the article:
1. Tether has invested part of its reserves in Chinese commercial paper. According to a document obtained by Bloomberg Businessweek, which details the holdings of Tether Holdings Ltd., the company has provided billions of dollars in short-term loans to several major Chinese companies—a practice that money market funds typically avoid. This occurred even before China's largest property developers, including Evergrande Group, began facing financial troubles. While Tether denies holding any debt issued by Evergrande, its lawyer declined to disclose whether it holds other Chinese commercial paper, stating only that the vast majority of Tether’s commercial paper holdings are highly rated by credit rating agencies.
2. Tether has lent out billions of dollars in collateralized loans using cryptocurrencies as collateral, including Bitcoin. According to Alex Mashinsky, founder of Celsius Network Ltd.—a crypto-focused "quasi-bank"—Celsius borrowed from Tether at interest rates of 5%-6%. Tether was a major investor when Celsius raised $30 million in June 2020. Last month, Celsius received a cease-and-desist order from securities regulators in Kentucky regarding certain interest-bearing crypto accounts, who claimed these accounts violated state securities laws by failing to disclose how customer deposits were handled or whether they were protected under state regulation. Tether’s lawyer maintains these loans carry low risk because borrowers must post Bitcoin collateral exceeding the loan value.
3. A banker says Tether executives have actually placed reserves at risk. John Betts, former CEO of Noble Bank International LLC—the Puerto Rican bank that partnered with Tether—claimed that Tether CFO Giancarlo Devasini has put the company’s reserves at risk. He stated: "This isn’t a stablecoin; it’s a high-risk offshore hedge fund."
4. Tether no longer keeps all of its assets at a single bank in the Bahamas. Jean Chalopin, chairman of Deltec Bank & Trust in Nassau, Bahamas, said they hold only cash and extremely low-risk bonds for Tether. However, he recently noted that Tether has started using other banks to manage its funds, with only about one-quarter (approximately $15 billion) still held at Deltec. Chalopin added: "I can't speak about what I don't know. I can only speak to our relationship with Tether."
5. Tether executives are subjects of a U.S. criminal investigation. According to Bloomberg News, earlier this year prosecutors from the U.S. Department of Justice sent letters to Devasini and other Tether executives informing them they are targets in a criminal probe into alleged bank fraud. The FBI is investigating whether they deceived banks into opening accounts years ago.
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