• A Bloomberg investigation revealed Tether’s reserves include billions in Chinese commercial papers.
• Tether’s CEO deactivated his Twitter (NYSE:) account after Businessweek published the findings.
• In recent months, regulators have been looking into the largest stablecoin.

It is often taken for granted that decentralization exists. As individuals ignore the obvious centralization, multiple entities are benefitting from the increasing interest in a decentralized future. Businesses that seek to overcome the centralization gap are repeating business models, which blockchain visions attempt to avoid. Companies such as these are warning signals for the crypto community, due to their opaque public representation.

FUD’s Great Wall

It is possible that the celebrations of China’s absence from the crypto market will be temporary. A new Bloomberg investigation discovered that Tether’s reserves are not as stable as deemed. Specifically, the report indicates that Tether has billions invested in Chinese commercial papers; however, a Tether spokesperson said the company holds commercial papers “in A-2 and above rated issuers.”

The Evergrande crisis intensified the community’s concerns regarding Tether’s Chinese market exposure. However, the Bloomberg report highlights that Bitcoin’s reserves include billions of dollars in short-term loans to Chinese companies, aligning with existing community concerns.

What’s worrying is that a possible collateral shake-down caused by a Chinese financial crisis could ripple through Tether’s finances, overwhelming crypto, and financial stability.

Bloomberg’s Zeke Faux also noted that Tether has “lent billions of dollars more to other crypto companies” that include as collateral. Tether was also involved in the Celsius Network equity crowdfunding with an investment in excess of $10 million. The same report notes that Celsius is paying between 5-6% interest on “$1 billion in loans from Tether.”

Flipside

• After publishing reports detailing their conduct, companies such as Coinbase (NASDAQ 🙂 or Binance sued media outlets.
• Jerome Powell called for quicker stablecoin regulations.

What are you waiting for?

In response to the Businessweek article, Tether released a statement condoning the findings, stating that the findings are “a one-act play the industry has seen many times before,” which takes “snippets of old news” and “dubious sources” to create a framed package for their readers.

John Betts, a former CEO of Noble Bank International in Puerto Rico, stated to Bloomberg that executives made risky decisions with investors’ funds for their own profits. In response, Tether argued that the author failed to follow the string of facts and relied on John Betts, who was “fired as a banker” by Tether.

Amid growing market scrutiny, Tether’s CEO, JL van der Velde, has deactivated his Twitter account, but not before posting one last tweet condemning the action by the “dying magazine.” The finality of his last tweet might indicate additional news will follow, as van der Velde said to “stay tuned.”

Crypto Is Collateral Damage

Amid growing concerns of Tether’s exposure and increased regulatory backlash towards stablecoins, Digital Currency Group, which owns media outlet CoinDesk, had filed a Freedom of Information Law (FOIL) petition to reveal documents concerning the composition of Tether’s reserves.

In response, Tether’s lawyer petitioned to block the reports claiming they include “information about financial strategies and compliance measures.” What’s certain is that Tether does not want to show any evidence about its exposure. Tether and Bitfinex have settled $18.5 million in a suit with the Office of the Attorney General of New York. Tether will be required to publish quarterly statements and data on the company’s reserve allocations.

What are the reasons to care?

Tether is acting against the principles of cryptocurrency markets, and their ability show transparency. Tether’s lack of transparency doesn’t help Bitcoin’s volatility index, as any Chinese financial crisis could damage cryptocurrency’s growing slope.

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