Stablecoins in the crosshairs: why does Tether go out to the crossroads and reject a relationship with this Chinese giant?

The stablecoin is one of the most criticized by commercial institutions around the world, who question the support in dollars of the tokens issued

Tether (USDT), the world’s largest stablecoin, is in the crosshairs of many players in different weighted markets.

The issuing company of the cryptocurrency, Tether Holdings Limited, clarified in a release who does not own any commercial paper or securities issued by the embattled Chinese developer Evergrande Group, as scrutiny towards the risks of this type of token grows.

The company, which currently has total liabilities of more than US $ 300,000 million, is also in the limelight as he rushes to raise funds, and staggers between a collapse with powerful impacts, pending a government bailout.

“Tether does not have any commercial paper or other debt or securities issued by Evergrande and never has,” they noted from Tether. “The vast majority of the commercial paper held by Tether is in Issuers rated A-2 and above“they added.

Tether Holdings divested of the US $ 300,000 million liability of the Chinese company Evergrande Group

The main unit of Evergrande possessed 205.7 billion yuan (about $ 32 billion) on commercial paper by the end of 2020, filings show. Developer recently requested suspend trading of that unit’s corporate bonds following a downgrade in the rating, which according to market participants indicated a increasing probability of default and restructuring.

The Chinese multinational indicated that, at the end of June 2021, approximately half of Tether’s $ 62.8 billion assets were backed by commercial paper and certificates of deposit.

Regulators start to pay more attention to stablecoins, digital tokens that have a value tied to other assets, often with the US dollar, and are backed by a pool of assets. Multiple analysts expressed their concern about liquidity of tokens in a moment of instability.

Why does Tether unsettle the experts?

USDT is the fourth cryptocurrency with the largest capitalization in the market (US $ 62,340 million) and the favorite of expert users to make transactions in the crypto world, that is why its level of acceptance is so high.

But this stablecoin is an object of concern to some economists, among whom is one of the most important executives of the United States Federal Reserve (FED).

While its link to the greenback makes it more attractive to banks, which seek to avoid high levels of risk inherent in cryptomarket, among specialists the suspicion that the issuing entity of the USDT it lacks sufficient dollar reserves to back it up.

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In May of this year, Tether revealed that only 2.9% of its reserves are held in cash, while 50% is represented by commercial paper, a form of short-term unsecured debt.

In this way, the firm is in the ‘Top’ 10 of holders of commercial papers in the world, according to JP Morgan, and several of its analysts warned that a sudden loss of confidence in the stablecoin could lead to a “severe and broad impact on the liquidity of the crypto market.”

For this reason, Eric Rosengren, president of Federal Reserve Bank of Boston rated it as one of the potential threats to financial stability. “A future crisis could easily be triggered as these become a more important sector of the financial market, unless we start to regulate them and make sure that there really is much greater stability in what is marketed to the general public as a stable currency, “warned the official.

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For its part, the risk rating agency Fitch Ratings also issued an alert for a sudden USDT bulk swap that could destabilize credit markets in the short term.

“Currencies that are fully backed by safe and highly liquid assets present less risk, although authorities may still be concerned about whether the impact is potentially global or systemic. On the other hand, stablecoins that use fractional reserves or adopt allocation riskier assets may face a greater risk of flight, “they explained from Fitch Ratings.

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Stablecoins in the crosshairs: why does Tether go out to the crossroads and reject a relationship with this Chinese giant?

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