IS TETHER HAVING PROBLEMS?

Arthur Hayes ( former CEO of BitMEX) believes that Tether is too risky because they hold about 22.8 billion USD in Bitcoin and gold.

Hayes's argument is as follows:
- Tether's assets: 181.2 billion USD
- Liabilities: 174.4 billion USD (is the total USDT in circulation)
- Excess reserve: 6.78 billion USD

On paper, this is a safe level because Tether has more assets than the amount of USDT that needs to be backed. Tether makes a lot of money from high interest rates by holding U.S. government bonds. However, when expectations of interest rate decreases in the future arise, the profits from bonds will diminish, so Tether has to find other sources of profit and has invested part of it in gold, Bitcoin, and some other assets.

However, Hayes argues that if Bitcoin and gold drop by 30%, Tether would lose about 6.8 billion USD, nearly equal to the 6.78 billion USD reserve provision in the reserve report. According to him, this could deplete the reserve buffer and leave USDT lacking collateral assets because they would fall short by about 200 million USD.

This has created a lot of controversy in the community. Some people believe this is FUD, while others are genuinely concerned. As usual, the truth lies in the middle.

The important point to understand is that the reserve report confirmed by BDO only reflects a single legal entity, the company that directly guarantees USDT, which is Tether International, S.A. de C.V. (El Salvador).

This report does not include other companies of Tether or the colossal profits of the entire group. According to reports and shares from Tether's CEO, Tether earns over 10 billion USD each year from bonds and has more than 30 billion USD in assets at the corporate level, these amounts are outside the USDT reserve report. Therefore, even if Bitcoin and gold drop sharply, Tether theoretically can still replenish the reserve buffer with profits and equity at the corporate level. That is why Tether has survived every major crash from 2018 to the Luna crash in 2022 and the banking crisis in 2023. USDT sometimes deviates from the peg in panic but always recovers quickly, and most importantly, Tether has never refused a request to exchange USDT for USD.

In summary, the reserve of 6.78 billion USD can fluctuate with the prices of Bitcoin and gold, but Tether has much more money behind it, so the risk of insolvency due to normal market fluctuations is exaggerated. On the other hand, it's not entirely true to say there is nothing to worry about.

The truth is that we do not have full information about the 30 billion USD equity of the entire Tether group, they may be holding government bonds, or investing in other businesses. We simply do not have a complete picture because Tether currently only has an attestation report, not a full audit, however, this may change soon due to the Genius Act requiring mandatory audits.#JoinGrowthPointsDrawToWiniPhone17 #DecemberRateCutForecast $BTC $ETH