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Tether Divests From Commercial Paper To Hedge Its Reserves


In the wake of the Terra Luna UST crash, Tether is rethinking its financial management policy, and it is gradually divesting from commercial papers to back the Tether Stablecoins (USDT).

A commercial paper is a source of finance that credit-worthy firms issue to shore up their working capital when faced with liquidity risks. It is an unsecured promissory note that can be exposed to risks of non-payment, such as other types of debt financing.

Divesting From Risky Assets Guarantees Long-Term Stability

In a press release, Tether confirmed reducing its commercial paper assets by 17%, from $19.9 billion to $24.2 billion. The change is not spontaneous, as per the quarter-over-quarter review. The company is committed to shedding off a further 20% of its commercial paper holding, which will be reflected in the report for the next quarter.

The timely and relevant information when Stablecoins are under the spotlight. Investors and regulators are mulling the idea of adopting Stablecoins as a means of payment.

With its gradual divesting from commercial paper, Tether is increasing its share of the US Treasury bills deemed low risk. As per the official report, the blockchain platform has grown its Treasury bills holding from $34.5 billion to $39.2 billion.

Who Are The Issuers Of The Commercial Papers?

In October last year, a Bloomberg report revealed that Chinese firms had issued the bulk of Tether’s commercial papers. Although these companies are renowned for their government-backed stability and resilience, they are also prone to pollical risks that can have a domino effect on Tether. The news stoked investor concerns, especially since the value of the commercial papers is almost half of the aggregate reserve pool of $82 billion as of March 31, 2021.

Comparatively, cash reserves are a paltry $4 billion, which makes it a matter of urgency to divest from a dominating financial option. Hence, in addition to Treasury bills and cash reserves, corporate debt is also being brought into the asset mix.

Tether Is Committed To Transparency

The company has not revealed the issuers of its commercial papers, probably due to non-disclosure agreements. However, on May 12, Tether disclosed that it is ready to prove its solvency position to investors on demand. This strategy is expected to allay the prevailing fears and prop the USDT in the otherwise bearish market.

In the meantime, the USDT is ranked as the third-largest digital asset with a market capitalization of $74 billion. A token is currently priced at $0.99, slightly below the ideal $1. Despite the minute fall, USDT is highly stable and can be used as a means of payment and a store of wealth.

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