Tether Denies Holding Evergrande’s Commercial Paper as Reserve for Stablecoin USDT

It’s the latest twist in ongoing speculation over the quality of the reserves backing USDT.

AccessTimeIconSep 15, 2021 at 2:57 p.m. UTC
Updated May 11, 2023 at 4:46 p.m. UTC

Tether Ltd., the company behind the world’s largest stablecoin, has pushed back against lingering speculation that its dollar-pegged currency USDT is backed by commercial paper issued by the now cash-strapped Chinese property giant Evergrande Group.

“Tether does not hold any commercial paper or other debt or securities issued by Evergrande and has never done so,” Tether external spokesperson Alex Welch said in an email on Wednesday.

Tether’s denial comes amid Evergrande’s deepening liquidity crisis. The troubled property giant with $300 billion in liabilities warned Wednesday that it could default on its massive debts. Shares in Evergrande have been in a free fall for several weeks and slid another 10% in early trading on Tuesday, reviving speculation of Tether’s exposure to Evergrande.

Commercial paper is a type of short-term debt that companies issue and usually considered to be extremely safe for investors because it’s quickly repaid. But when an issuer faces a cash shortfall, there’s a risk that the commercial paper borrowings might not be repaid in full.

Tether revealed in May that the USDT stablecoin was backed by a combination of cash, U.S. Treasurys and other assets. Nearly half of the reserves were backed by commercial paper. The company has repeatedly refused to disclose just who issued that commercial paper, instead just publishing the ratings.

The speculation over the quality of the reserves has swelled along with USDT issuance. The stablecoin’s market capitalization has tripled just this year to about $68 billion, according to CoinMarketCap.

“As we have indicated in our published statements and in our most recent assurance attestation with a reporting date of June 30, 2021, the vast majority of the commercial paper held by Tether is in A-2 and above rated issuers,” Welch wrote.

The A-2 rating denotes companies considered investment-grade, or those seen by credit-rating firms as likely to make good on their debts.

“These ratings refer to S&P short-term credit ratings, where available. Where a rating is unavailable, publicly available industry-standard conversion tables have been used to convert ratings from Moody’s or Fitch to the S&P equivalent,” the statement from Welch added.

It’s still possible, of course, that the broader commercial paper market may take a hit, simply because of Evergrande’s position. When major corporate borrowers default, prices across all related assets sometimes swoon because of the interconnected nature of global markets; some investors may need to sell off their safest holdings to raise cash.

“Currently both Tether and Circle [the company behind stablecoin USDC] hold commercial paper, and while I think it unlikely that either would have large swaths of Evergrande bonds, the whole market will reel a bit,” Adam Cochran, a partner with Cinneamhain Ventures, tweeted Tuesday. “Regardless of what commercial paper you hold, bonds and commercial paper would take a hit and some issuers may even fold.”


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Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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