Some thoughts about stablecoins like Tether

Photo by Jp Valery on UnsplashStablecoin issuer Tether has published the composition of the reserves by which the USDT stablecoin is backed. The percentage of real dollars is surprisingly low. But whether that is as damning as critics gleefully account for is hard to say.The stablecoin Tether (USDT) has long been criticized. That’s because the dollar token, which has now reached close to $60 billion, is a mainstay of crypto markets — and has long been suspected of manipulating markets with insufficient backing.The full Tether story would be far too long at this point. What is relevant here is that Tether was recently required by the New York Attorney General’s Office to disclose on a semi-annual basis the composition of the reserves through which the company covers the stablecoin. Tether has now complied — by publishing two pie charts on its website showing the reserves as of March 31, 2021.These pie charts first show that “cash or cash-like” funds do not account for the full coverage, but just under 76 percent. The other funds consist of:12.55 percent secured loans (Secured Loan). What the loans are backed by is unclear, as is to whom they are made. It would be conceivable that the borrowers are other exchanges flooding their markets with liquidity through the tethers, and those other cryptocurrencies back them. But that’s speculative.9.96 percent “corporate bonds, funds, and precious metals.” This group is extremely vague and squishy; anything could be hidden behind it. One could assume that the bonds of the sister company Bitfinex, which Tether received for a loan, fall into this group.1.64 percent “other investments,” including digital tokens. These tokens are exclusively bitcoins, according to Bitfinex.Most importantly, however, is admittedly the category of cash and cash-like funds. If one takes the designation seriously, these should be dollars or…