Tether’s Balance Sheet Is In Bad Shape – Small Drop Could Cause Insolvency

Tether’s balance sheet is in bad shape and a small drop could cause insolvency, according to a Wall Street Journal (WSJ) story, even a 0.3% loss in the value of its reserve assets might “make Tether technically insolvent.”

WSJ editors Jean Eaglesham and Vicky Ge Huang focused on the murky nature of Tether’s USDT reserves in an Aug. 27 piece, as well as its long-awaited audit, which has been in the works since 2017.

Eaglesham and Huang stated that a “narrow cushion of equity” may trigger market havoc if Tether’s obligations exceeded its assets:

“A 0.3% fall in assets could render Tether technically insolvent — a development that skeptics warn could reduce investor confidence and spur an increase in redemptions.”

Tether has $67.74 billion in assets and $67.54 billion in liabilities at the time of writing, a difference of only $191 million, according to Tether’s website. Tether’s balance sheet is in bad shape, really bad shape. Insolvency is around the corner.

Tether CTO Paolo Ardoino, on the other hand, has downplayed the severity of Tether’s narrow margins, telling the outlet that he expects its capital to “expand dramatically over the next few months,” adding:

“I don’t think we are the systemic risk in [the crypto] system.”

Ardoino also stated that the company has had no trouble redeeming customer cash and that it was able to redeem $7 billion in under 24 hours after a recent crypto market drop. Ardoino also strongly stated that there is no reason to fear that Tether is facing insolvency.

Tether’s website presently indicates that cash, cash equivalents, other short-term deposits, and commercial paper account for 79.62% of its reserves. The remaining 8.36% is made up of undisclosed digital tokens, 6.77% in secured loans, and 5.25% in corporate bonds, money, and precious metals.

Ardoino, on the other hand, refuses to comment on what Tether’s $5.6 billion in other investments are composed of, according to the article.

Given Tether’s market dominance and the firm’s previous confrontations with authorities over alleged misrepresentations of Tether’s backing, the nature of Tether’s reserves has been a long-running and crucial topic in the crypto sector.

Tether is legally compelled to publish quarterly disclosures detailing the particular composition of its cash and non-cash reserves as part of a $18.5 million settlement with the Office of the New York Attorney General in February 2021.

Ardonio also told the WSJ that the business would soon transition to monthly reporting as part of its effort to increase openness.

Tether hired large accounting firm BDO Italia earlier this month to help it meet its reporting transparency goals by completing independent attestations. However, there is yet to be a complete audit of the company, which would go further into Tether’s financials and give the entire breadth of its operations.

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