Since the crypto market began falling in early May, the billion-cap Tether stackcoin, which functions as the largest bank in the cryptocurrency economy, has conducted $10 billion in buybacks.
This means that the company is effectively dealing with the withdrawals that are occurring because investors are seeking to exchange their tokens for fiat currencies.
According to the public blockchain, Tether users withdrew $1 billion worth of Stablecoin on Saturday night into Sunday, in the process, the cryptocurrency was returned to the company and destroyed.
Three days earlier, another $1.5 billion was redeemed in a similar manner. The total withdrawal, taking into account minor fluctuations in the peg of stabelcoin, currently amounts to about one-eighth of the company’s total reserves.
The latest redemption came after Tether released audited statements that show that as of the end of March, the company was backing user deposits with a mix of US Treasury bills, private company bonds and a host of other investments worth about $5 billion, invested in various cryptocurrency entities among other things.
At first, Tether claimed that stabelcoin reserves were backed by U.S. dollars one-to-one. However, after an investigation by the New York Attorney General, the company admitted that this ratio is not always maintained.
The latest report proves that Tether keeps about $20 billion of its cash in commercial paper, $7 billion in money market funds, and nearly $40 billion in U.S. Treasury bills, and it’s generally a safe investment. Another $7 billion is held in “corporate bonds, funds and precious metals” and “other investments (including digital tokens).”
That’s a small portion of Tether’s reserves, but it exposes the company to a risk that would make the organization unable to keep its promise of full collateral in the event of significant market fluctuations.
That may have already happened, says financial technology columnist Patrick McKenzie, who works at payments company Stripe. According to the expert, it happened because Tether made an investment in the digital tokens of cryptocurrency investment platform Celsius.
Tether invested $62.8 million in reserves into the Celsius network… Celsius is in freefall because of the current market situation, which has caused their token value to drop more than 86%,” McKenzie said.
Obviously, these investments have depreciated by more than $20 million. The depreciation of 1% of one item on their balance sheet ate up more than 10% of their capital.