Tether's financials are precarious; a price decline could lead to insolvency.

Tether’s financials are precarious; a price decline could lead to insolvency.

Even a loss of 0.3% in the value of Tether’s reserve assets may “render Tether technically insolvent,” according to an article published in the Wall Street Journal (WSJ). Tether’s balance sheet is in poor health, and even a little dip might force the company to become insolvent.

In an article published on August 27, 2018, the editors of the Wall Street Journal (WSJ), Jean Eaglesham and Vicky Ge Huang, focused on the unclear nature of Tether’s USDT reserves, as well as the company’s long-awaited audit, which has been in the works since 2017.

Eaglesham and Huang stated that a “thin cushion of equity” may cause market turmoil if Tether’s commitments surpassed its assets: According to the information provided on the Tether website, the cryptocurrency exchange has assets of 67.74 billion dollars and liabilities at 67.54 billion dollars at the time this article was written, leaving a discrepancy of only $191 million dollars. The statement of assets and liabilities for Tether is in a poor state, a very poor state. It is only a matter of time before the company goes bankrupt.

Tether CTO Paolo Ardoino, on the other hand, has downplayed the severity of the business’s thin margins. He told the outlet that he expects its capital to “grow considerably over the next few months.” Ardoino also indicated that the company has had no issue redeeming customer cash and that it was able to redeem $7 billion in less than 24 hours after a recent downturn in the cryptocurrency market. Additionally, Ardoino made it clear that there is no need for concern regarding the possibility of Tether going bankrupt in the near future.

At the moment, the official website for Tether reveals that cash, cash equivalents, other short-term deposits, and commercial paper make up 79.62% of the company’s reserves. The remaining 8.36% consists of digital tokens whose identities have not been disclosed, 6.77% in secured loans, and 5.25% in corporate bonds, money, and precious metals respectively.

According to the story, Ardoino, on the other hand, will not comment on the nature of Tether’s other investments, which are estimated to be worth $5.6 billion.

The nature of Tether’s reserves has been a hotly debated and critically important topic in the cryptocurrency industry for quite some time now. This is due to the fact that Tether currently holds a dominant position in the market, and the company has had previous run-ins with authorities regarding allegations of making false statements regarding Tether’s backing.

As part of a settlement agreement for $18.5 million reached with the Office of the New York Attorney General in February 2021, Tether is legally obligated to publish quarterly disclosures describing the particular composition of its cash and non-cash reserves. These disclosures must include specific details regarding the cash and non-cash reserves that make up Tether’s reserves.

As part of the company’s endeavor to be more transparent, Ardonio also mentioned to the WSJ that the company will soon begin releasing its financial results on a monthly basis.

In the beginning of this month, Tether decided to seek the assistance of the large accounting firm BDO Italia. BDO Italia was hired to assist Tether in achieving the reporting transparency targets it had set for itself by conducting independent attestations. Tether’s finances and the full scope of the company’s operations have not, however, been subjected to a comprehensive audit because this company has not yet undergone the necessary procedures.

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