How safe is Tether crypto USDT?

How safe is Tether crypto USDT?

How safe is Tether crypto USDT?

One of the main talking points in crypto lately has been the fall of many prominent algorithmic stablecoins, most notably UST.

Amid the chaos caused by the fall of these stablecoins, many parties have tried to take advantage of the market volatility. In a tweet, Paolo Ardoino, the CTO of Tether, claimed that many hedge funds attempted to cause panic and short its USDT stablecoin.

Many were left wondering, is Tether safe?

    Hedge funds shorting USDT

    Ardoino does not name specific hedge funds in his tweet. Rather, he accuses them of spreading FUD, shorting USDT perps, shorting spot USDT, and unbalancing DeFi pools.

    He claims their goal was to create pressure in the billions to create a large amount of outflow to harm Tether liquidity and then buy back Tether crypto tokens cheaper to redeem them for the full $1 per token.

    According to Ardoino, the flawed beliefs of the hedge funds included believing that the Tether crypto token USDT was not 100% backed by real dollars, that Tether had exposure to Evergrande (a Chinese property developer that defaulted on its hundreds of billions of dollars in liabilities), and that Tether issued loans without over-collateralization.

    Alameda Research, a crypto trading firm created by FTX-founder Sam Bankman-Fried,, bought cheap USDT when it dropped a few cents during the alleged hedge fund attack and redeemed them for full dollars. Is Tether safe? Alameda seems to think so:

    Is Tether safe?

    Tether offers stablecoins for American dollars, Mexican pesos, Chinese Yuan, and euros. All of its tokens are pegged at 1-to-1 to their matching fiat currency and are backed 100% by Tether’s reserves. USDT is the largest dollar stablecoin by market cap.

    You are able to redeem your Tether crypto for the real currency any time you wish, and so far, it has proven to work flawlessly in practice. As the chart below shows, USDT has had no lasting depegs since it started trading in 2015.

    During the FUD frenzy, Tether processed $7 billion in redemptions, which averaged 10% of its total assets, with barely any impact on USDT’s price. In a tweet, Ardoino answers the question, is Tether safe?

    “In more than one month Tether processed 16B in redemptions (~19% of our total reserves), again proving that our operations, portfolio, banking infrastructure and team are solid and battle tested.”

    Tether provides regular accounting reports to prove that its stablecoins are backed by real assets. In the chaotic world of crypto, anything could happen, yet lately Tether has gone to great lengths to prove that its USDT stablecoin is safe and backed by real dollars.

    Has Tether always been safe?

    Tether has had its fair share of FUD during its journey. Its first major criticism was published in New York Times in 2017 after an individual called Bitfinexd wrote several articles in which they claimed that the popular exchange Bitfinex and Tether, both of which have the same owners, were creating Tether crypto tokens out of thin air without any dollar backing. To this day, Bitfinexd remains a USDT adversary.

    Roughly a year following the New York Times article, a research paper was published in which the writers argued that “purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices,” which they concluded “suggests insufficient Tether reserves.”

    Dan Held, the Director of Growth at Kraken, argues that the writer’s arguments fall apart due to a flawed misunderstanding between correlation and causation.

    In April 2019, it was revealed that Bitfinex had sent “$850 million of customer and corporate funds to Crypto Capital Corp., a payment processor.” However, Crypto Capital encountered issues with the authorities in relation to its Polish bank account, leaving Bitfinex with its funds locked away. Its solution was to take a line of credit on the reserves used to back Tether crypto tokens, which left Tether with a massive hole in its backing during that time.

    In October 2021, the Commodity Futures Trading Commission fined Tether $41 million for having its stablecoins backed by sufficient fiat reserves “for only 27.6% of the days in a 26-month sample time period from 2016 through 2018.” Furthermore, the order stated that Tether had not completed an audit of the Tether reserves.

    What’s really backing Tether?

    Tether only released a total of 3 reports before 2021 to prove its reserve balance, to which none were attested. Since then, Tether has released reserve reports that are more in-depth. In its latest report, its reserves are reported as:

    However, Ardoino stated that Tether has reduced its exposure to commercial paper to around $8.4 billion, which it will keep reducing to increase its U.S. Treasury Bills holdings.

    While it has had its ups and down, is Tether safe? There is no objective answer, and each investor must assess the risk by themselves with the information available.

    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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