Usually underpinned by reserves of assets such as dollars, gold and government debt, stablecoins are widely used in cryptocurrency trading – with Tether the predominant medium for moving funds between crypto or into regular cash.
Yet Tether broke its 1:1 peg with the dollar as cryptocurrencies fell, dropping to as low as 95 cents, according to CoinMarketCap, before recovering, shaking faith in a key cog in the crypto economy.
The token, run by a British Virgin Islands company, is designed to hold a value of $1. Tether promises it has sufficient reserves to allow all holders of the over-$70 billion worth of Tether in circulation to exchange their tokens for dollars.
Tether said it boosted its holdings of Treasuries by over 13% to $39.2 billion and cut its exposure to riskier commercial paper – short term debt issued by companies – by around 17% to $20.1 billion in the first quarter.
Tether said its reserves totalled $82.4 billion as of March 31, with some $82.3 billion in liabilities. It has reduced its commercial paper holdings by an extra 20% since the Q1 report was written, Chief Technology Officer Paolo Ardoino said.
Financial regulators worldwide have warned that stablecoins could pose a risk to wider financial stability, with Britain among major economies looking to regulate the sector.