Tether's USDT Allegedly Backed by 10% Cash, Sparking Stability Concerns

Tether, the issuer of the widely used stablecoin USDT, has faced allegations of using borrowed money to back its tokens. This revelation has sparked significant concerns about the stability and reliability of USDT, which is a cornerstone of the cryptocurrency market. The allegations suggest that Tether's reserves, which are supposed to be fully backed by fiat currency or other liquid assets, may include borrowed funds. This practice, if true, could introduce volatility and risk, contradicting the very purpose of a stablecoin, which is designed to maintain a stable value pegged to a fiat currency, typically the US dollar.

Crypto analyst Deso has raised serious questions about the stability of Tether (USDT) by claiming that the stablecoin may not be fully backed by real US dollars. Instead, Deso alleges that Tether relies on borrowed money and risky financial loops. According to his analysis, firms are leveraging borrowed funds to buy USDT, converting it into crypto like Bitcoin, and then selling it for dollars—repeating the cycle. The key players he names are Abraxas, Cumberland, and Wintermute. These firms allegedly rely on high crypto prices and constant demand to sustain the loop. If prices fall or demand dries up, the system could collapse, leaving borrowed money unpaid—a setup Deso likens to a Ponzi scheme.

Tether has posted its records, revealing that only 10% of the more than $69 billion-worth of Tether coins are backed with real cash and similar assets. This disclosure has further fueled the controversy, as it indicates that a significant portion of USDT may not be fully backed by liquid reserves. The company's transparency in this matter has been questioned, with critics arguing that Tether should provide more detailed and verifiable information about its reserves.

In a separate post, Deso highlighted that Tether recently shifted its headquarters to El Salvador, a nation without an extradition treaty with the U.S. He also flagged that Tether’s co-founder, Giancarlo Devasini, now controls at least $150 billion in USDT, as per blockchain tracking tools. Deso has called on journalists, investigators, and the wider crypto community to scrutinize Tether’s reserves and operational practices more closely.

The implications of these allegations are far-reaching. Stablecoins like USDT play a crucial role in the cryptocurrency ecosystem, serving as a bridge between traditional finance and digital assets. They are used for trading, remittances, and as a store of value. If the integrity of USDT is compromised, it could have a ripple effect on the broader cryptocurrency market, affecting liquidity, trading volumes, and investor confidence.

The regulatory landscape for stablecoins is also likely to be impacted by these developments. Regulators around the world have been increasingly scrutinizing stablecoins due to their potential systemic risks. The allegations against Tether could prompt stricter regulations and oversight, aimed at ensuring that stablecoins are fully backed by liquid assets and that their issuers maintain transparency and accountability.

In response to the allegations, Tether has maintained that its reserves are sufficient to cover all outstanding USDT tokens. However, the company has faced criticism for its lack of transparency and the delay in providing independent audits of its reserves. The controversy surrounding Tether highlights the need for greater transparency and regulatory oversight in the stablecoin market, as well as the importance of maintaining trust and confidence among users and investors.