New York Supreme Court orders Tether to reveal reserve records

Tether’s bid to keep its reserve records private was rejected by the New York State Supreme Court.

On Monday, the Supreme Court of the State of New York rejected Tether’s petition to prevent the release of the documents that detail the composition of the reserves backing USDT, Tether’s collateralized stablecoin.

Today, Tether responded by issuing a rough outline of their reserves, claiming that their assets exceeded the amount needed to redeem all circulating USDT and boasting a 17% decrease in its commercial paper holdings, a form of unsecured debt corporations use to finance short-term liabilities.

In February, Tether had published a similar breakdown of the reserves as they stood at the end of 2021. At the time, about 30% of Tether’s total reserves at the time was made up of commercial papers.

Changing landscape

The report comes hot on the heels of the recent Terra meltdown, which started with the depegging of the network’s algorithmic stablecoin UST. As UST was plunging, Tether itself came close to depegging, dropping as low as $0.95.

Tether’s mechanism relies on the company’s reserves rather than an algorithm, but that doesn’t protect it from the FUD. Between May 11 and May 16, Tether faced a sell-off that totaled $7 billion worth of USDT.

Today's report on Tether's reserves is part of the company's frantic efforts to soothe investors spooked by the meltdown of Terra's algorithmic stablecoin UST. Since the crisis started, Tether's CTO Paolo Ardoino repeatedly assured the crypto community that the entire supply of USDT was collateralized so that the dollar peg would remain stable even if selling pressure on crypto exchanges exceeded those exchanges' liquidity.

Non-public relationships

The composition of Tether's reserves is a delicate matter for the company, which has led a months-long legal battle with the crypto news service CoinDesk over access to the details of their holdings.

The case, which ended with the Monday ruling, had started in June 2021, when CoinDesk filed a Freedom of Information Law (FOIL) request with the New York Attorney General (NYAG), requesting the release of the “asset reserve composition” the NYAG collected as part of an investigation Tether and Bitfinex had settled for $18.5 million earlier last year.

Tether and its sister company Bitfinex pushed back, arguing that the details CoinDesk requested were confidential and that their release would hurt Tether’s business. “Tether’s competitive advantage” comes not from the “operational features” of USDT itself, but from the “liquidity of the tokens in the marketplace,” the company said, pointing out that CoinDesk and Tether’s competitor Circle share the same investor.

They went on to add that Tether and Bitfinex were “cultivating non-public relationships” with the few financial institutions “capable of processing a high volume of high value transactions efficiently” that “would work with them.”