Tether Hits Back at WSJ, Claims Loans Are ‘Overcollateralized’

Tether has stated that its collateralized loans are heavily collateralized in response to a recent report alleging Tether-led problems in the sector.

The Wall Street Journal notes in its report that Tether has not disclosed its USDT stablecoin-issued loans. It further questions its long-term liquidity to honor redemptions. The concerns come after one of the largest crypto exchanges, FTX, filed for Chapter 11 bankruptcy this month. The WSJ emphasizes that the subsequent market decline could have diluted Tether’s security.

The report also noted, “Tether does not say what the loans’ market value is, or whether the collateral includes cryptocurrencies.”

In response, Tether stated: “The article had many misconceptions of Tether and USDT, the most glaring being the claim that because Tether’s secured loan of USDT was denominated in USDT, Tether was vulnerable to a decline in the value of USDT.”

Tether under the microscope after FTX collapse

Tether has a long history of trouble with regulators. Questions surrounding Tether’s reserves erupted even around the Terra Luna crisis and the 3AC-led market collapse. Once again, the FTX bankruptcy has renewed concerns about the top stablecoin by market capitalization, especially as information about the role of FTX token FTT has shed light on the firm’s profit position.

That said, USDT also lost its dollar peg shortly after the contagion.

However, Tether argued: “This completely misses the mark and mistakes USDT itself for the collateral that underpins it. Tether’s secured loans are extremely oversecured and even backed by additional equity if necessary.”

The stablecoin issuer reiterated that its equity is growing rapidly, with 82.45% of its reserves held in US Treasuries and other cash equivalents. It went on to say that the WSJ overlooks that a fall in the price of USDT tokens is irrelevant in the context of a secured loan. Tether explains that these declines only represent exchange value rather than redemption value of the underlying security.

In addition, the media expressed concern that Tether is lending its tokens instead of selling them for cash. However, Tether compared it to what commercial banks do with their customers. The latter noted: “When a private banking customer needs some short-term liquidity and he has an important investment portfolio that he does not want to sell, the customer asks to pledge his portfolio for short-term liquidity.”

Continues to defend

This isn’t the first time Tether has hit back at news reports that question its accounting. Earlier in August, Tether had accused the WSJ of spreading “false information”. This was after the news organization suggested that hedge funds were shorting Tether due to its poor financial health. The stablecoin also backfired on Bloomberg this year after the news outlet made serious allegations against it. But the latter called report “doubtful”.

Last year, Tether was fined $41 million by the Commodity Futures Trading Commission for claiming to be fully backed by dollars. Since then, Tether has maintained its financial position. It stated once again, “Tether is not gambling clients’ money, but is and has managed its reserves accurately and does not use fractions.”

Meanwhile, the platform is again in legal trouble. A Bloomberg report claims that the Justice Department is looking into a possible bank fraud case against Tether and its sister organization Bitfinex.


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