Controversial stablecoin Tether released the latest iteration of its attestation report, this time from the future, for reserves backing its circulating supply. The report states that Tether had assets of $67.04 billion while its liabilities, equal to its circulating supply, were $66.08 billion as of December 31, 2022.

Technically, this should mean that the stablecoin had adequate reserves on that day to make investors whole if every token in the market was redeemed. But the real story is much more complicated.

Tether has consistently refused to submit its finances to a full audit. In the past, it has been fined by the New York Attorney General’s office for commingling funds and by the Commodities Futures Trading Commission for “untrue and misleading” claims about its reserves.

An attestation, of the kind released by the stablecoin today, only provides a snapshot of its reserves and does not provide proof that it has the necessary reserves to survive a run on its tokens. The stablecoin is one of the most important components of the cryptocurrency ecosystem. Instability in its peg or a possible crash will have ripple effects throughout crypto.     

No Commercial Paper but Risk Remains   

According to its latest report, Tether has eliminated commercial paper holdings from its report. Critics had earlier pointed to its commercial paper holdings as a possible source of risk. Today’s report would have allayed their fears except that the stablecoin has also reduced its exposure to a safe source of ready liquidity – cash and bank deposits – by 12.5% from the previous quarter.

Instead, it has plowed money into two other categories – money market funds and corporate bonds, precious metals, and funds – of its reserve assets. Its holdings in both categories increased by 4% and 7.8% respectively. The report does not disclose ratings of bonds and funds held by the stablecoin.

The share of Other Investments – a category that includes other digital tokens that have no inherent value and are mainly used for speculation – also rose slightly to 4% from last quarter’s 3.85%. What all of this means is that approximately 18% of Tether’s overall stated reserves or roughly $12 billion is invested in risky assets.

That percentage figure remains unchanged from the previous quarterly report, meaning the stablecoin has not made much progress in reducing its exposure to risk.  

A Profits Disclosure

In a first, the stablecoin also stated that it had profits of $700 million in the last quarter. But it did not disclose the source of these profits. There could be many conjectures on that topic. A Tether spokesperson told The Block that the profits were part of “shareholder equity” in excess of reserves and were “additional capital” to further strengthen Tether. Considering the mystery surrounding its ownership, it is not clear who are the beneficiaries of this equity.

Tether CTO Paolo Ardoino also stated that the stablecoin redeemed $21 billion worth of Tether last year. As I have written before, Tether’s redemption mechanism remains a mystery and is mostly conducted through its own website. Given the absence of information about its banking relationships and the fact that it is easy to burn a worthless token and claim it is redeemed, it is difficult to take that number seriously.