Tether calls WSJ article on USDT lending ‘hypocrisy’

The issuer Tether (USDT) called the WSJ article dedicated to the stablecoin “hypocrisy of the media, asleep at the wheel of information.” It notes that the company is increasingly issuing loans in the “stablecoin,” which could lead to a crisis in the event of a bank run.

WSJ & CO: The Hypocrisy of Mainstream Media, Asleep at the Wheel of Informationhttps://t.co/XS4eCE84I8

— Tether (@Tether_to) December 1, 2022

Journalists noted that issuing loans in stablecoins contradicts the policy stated on the website, according to which USDT is issued in exchange for fiat at a 1:1 ratio.

A Tether spokeswoman, Alex Welch, said that such loans are short-term, collateralized by “extremely liquid” assets and issued only to customers meeting the relevant requirements.

According to the latest report, as of September 30 they reached $6.1 billion (9% of total assets). For comparison, at the end of 2021 the figure stood at $4.1 billion (5%).

Welch told reporters that the issuer does not disclose detailed reports on its operations.

The disclosed documents indicate loan amounts in U.S. dollars rather than in USDT. The publication noted the risks of default on loans and insufficient collateral in the event of market turmoil that could lead to a bank run.

The WSJ noted the short-term deviations of the stablecoin peg on 12 May and 10 November. At that time, the USDT discount to the dollar reached 2.3 and 4.4 cents respectively.

“If USDT falls, and they have loans denominated in the stablecoin, then, by definition, this is not backed by the dollar,” said William Vanderburg, professor of accounting at Charleston Southern University in South Carolina.

On July 15, Tether stressed that the liquidation of Celsius positions did not incur losses. The company also denied reports that it was lending to the bankrupt Three Arrows Capital.

On November 17, the issuer reminded that it had “succeeded in liquidating the collateral of the lending platform, returning a portion of it.”

The publication noted that Tether discloses an amortized cost of loans, including a reserve for potential losses.

The metric can exceed the loans’ market value—the amount the issuer could claim if it sold the collateral. For example, Celsius pledged bitcoin that has fallen about 63% since the start of the year.

Journalists pointed to the risks of lending to related parties, though the company states that it has no dealings with affiliated entities. Starting in the second quarter, Tether dropped that wording. Welch declined to comment on the decision.

As of November 10, the issuer had equity of $250 million, with total assets of $68.06 billion and liabilities of $67.81 billion. The share of the metric in the balance-sheet currency rose from 0.2% to 0.4% since the start of the year.

The previously mentioned 4% detachment of USDT from parity equates to $250 million, which the journalists noted constitutes the company’s capital. Such a discount to market value relative to the balance-sheet value of loans is typical for publicly traded banks, they added, citing data from S&P Global Market Intelligence.

An analogous article appeared in the August issue. Its authors argued about “technical insolvency” of USDT if assets fell by 0.3%.

On August 19, the world’s fifth-largest auditor, BDO Italia, confirmed the collateral backing of the stablecoin.

In October, the U.S. Department of Justice reopened an inquiry into possible bank fraud by Tether’s executives, according to Bloomberg.

In June, media reported on the “popularity” of short positions in USDT amid negative market developments and the collapse of the Terra ecosystem.

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