CoinShares, a prominent European digital-asset investment firm, has responded to recent concerns regarding Tether's ability to cover its USDT liabilities. These concerns were amplified by comments from BitMEX co-founder Arthur Hayes, who suggested that the stablecoin issuer might be vulnerable to a significant decline in the value of its reserve assets.
In a market note released on December 5, CoinShares' head of research, James Butterfill, stated that the latest solvency concerns appear to be unfounded. He referenced Tether's most recent attestation, which indicates a substantial surplus of assets over liabilities. Butterfill argued that the current figures do not suggest systemic vulnerability for USDT.
Hayes had recently warned that as Tether increases its holdings in Bitcoin and gold, the likelihood of a sharp market pullback in these assets potentially undermining its equity cushion also increases. He posited that a decline of approximately 30% in these assets could theoretically deplete Tether's equity buffer, rendering USDT "theoretically insolvent."
This argument gained traction across cryptocurrency news outlets and social media platforms. In response, Butterfill provided a concise assessment of the available data. Tether's latest attestation reports $181 billion in reserves against approximately $174.45 billion in liabilities, resulting in a surplus of nearly $6.55 billion. The CoinShares note also highlighted Tether's exceptionally strong profitability this year, with a year-to-date profit exceeding $10 billion, concluding that the current data does not indicate systemic weakness.
CoinShares: Profits and Reserves Mitigate Volatility Risks for Tether
While acknowledging that risks associated with stablecoins are valid and should not be disregarded, CoinShares maintained that the current data for Tether does not exhibit signs of systemic vulnerability. Butterfill noted that Tether remains one of the most profitable companies in the sector, having generated $10 billion in the first three quarters of the year—a figure considered unusually high on a per-employee basis.
Tether's third-quarter disclosures, confirmed by an attestation report and widely covered by the industry press, detail significant portions of its reserves. These include substantial holdings of U.S. Treasuries, amounting to roughly $135 billion, alongside approximately $12.9 billion in gold and $9.9 billion in Bitcoin.
CoinShares recognized that the gold and Bitcoin positions are precisely the assets Hayes identified as potential sources of volatility. However, the firm asserted that the headline reserve-to-liability gap and strong profitability effectively mitigate near-solvency risks.
Tether Responds to Solvency Doubts Amidst Criticism of High-Risk Assets
Speculation regarding Tether's financial health is not a new phenomenon, with media outlets consistently monitoring its reserves and asset backing for years. However, the recent surge in solvency concerns appears to have been largely triggered by Arthur Hayes.
Hayes recently suggested that the market was in the "early innings of running a massive interest-rate trade" and claimed that a 30% drop in Tether's Bitcoin and gold holdings would "wipe out their equity" and render its USDt stablecoin technically "insolvent." Both Bitcoin and gold constitute a significant portion of Tether's reserves, and the firm has reportedly increased its exposure to gold in recent years.
Tether is also facing criticism from sources beyond Hayes. CEO Paolo Ardoino recently refuted S&P Global's downgrade of USDt's ability to maintain its U.S. dollar peg, dismissing the move as "Tether FUD" (fear, uncertainty, and doubt) and citing the company's third-quarter attestation report as evidence of its stability.
S&P Global downgraded the stablecoin due to concerns about its stability, citing its exposure to "higher-risk" assets, including gold, loans, and Bitcoin. According to CoinMarketCap data, Tether's USDt continues to be the largest stablecoin in the cryptocurrency market, with $185.5 billion in circulation and a market share of nearly 59%.