We wrote last month (in our May 10 Link of the Day), that "Stablecoin TerraUSD 'Breaks the Buck'," which described the meltdown in one of the major "stablecoins" used to transact crypto assets. Since then, the focus and concerns have moved towards the largest stablecoin, Tether. Several new articles shed a little light on Tether's reserves and backing, and it doesn't appear that investors will have their concerns assuaged. The Financial Times writes in, "Tether has held some reserves at Bahamas bank Capital Union," "Tether has held some of its reserves at a small Bahamas bank called Capital Union, people familiar with the matter said, shedding further light on how the group manages the $73bn stablecoin that underpins the crypto market. The stablecoin issuer has generally declined to reveal where exactly it holds the assets that back its eponymous token, known as USDT."
The FT explains, "Tether has come under renewed scrutiny in recent weeks after USDT briefly traded as low as 95 cents, significantly below the $1 peg it seeks to maintain. Investors have since redeemed more than $10bn from Tether, which has argued that the outflows have proven it has ample liquidity on hand. Launched in 2014, Tether's USDT token is widely used in cryptocurrency markets for trading bitcoin and other major digital assets. USDT is the largest stablecoin in circulation by market value. Tether is registered in the British Virgin Islands and promises to redeem on demand USDT on a one-to-one basis with dollars."
It continues, "The company's ability to keep that promise ultimately depends on the liquidity and safety of its reserves, which it says include bank deposits, US government bonds, commercial paper, precious metals and cryptocurrencies. Capital Union said 'the only information we make publicly available about our company is contained in the annual report' on its website, while Tether did not comment on its relationship with the bank. Tether previously disclosed that it has had a banking relationship since 2018 with another Bahamas bank, Deltec Bank & Trust.... In the past, Tether struggled to access the traditional financial system. Last year, US regulators said Tether had previously misled users about its reserves, in part because it had used bank accounts in the names of its general counsel and sister exchange Bitfinex. Tether and Bitfinex agreed to pay $60mn across two settlements in which they neither admitted nor denied wrongdoing."
The FT adds, "In an interview with the Financial Times this month, Tether's chief technology officer Paolo Ardoino said its most liquid reserves, cash deposits, were held at two Bahamas banks. He added that Tether had 'strong banking relationships' with 'more than seven, eight banks across the world'. People familiar with the matter said Capital Union was another Bahamas bank that Tether had used. The boutique bank was founded in 2013 and had assets of $1bn as of the end of 2020, the most recent year for which there are public accounts.... `It is unclear exactly how much of Tether's reserves have been held through Capital Union, or when the relationship began. Chalopin in a 2021 interview with Bloomberg said Deltec held only about a quarter of Tether's reserves, then about $15bn, in the form of cash and low-risk bonds."
Another article on CNBC.com, entitled, "Some investors got rich before a popular stablecoin imploded, erasing $60 billion in value," comments, "In May, the collapse of one of the most popular U.S. dollar-pegged stablecoin projects cost investors tens of billions of dollars as they pulled out in a panic that some have compared to a bank run. But before that, the stablecoin known as terraUSD (or UST, for short) and its sister token luna, had experienced a pretty spectacular run-up -- and some investors made a killing before it all collapsed. Venture capital firm Pantera Capital tells CNBC it earned a 100-fold return on its $1.7 million investment in luna. Hack VC and the Winklevoss-backed CMCC Global didn't share their exact gains, but CMCC told CNBC that it closed its luna position in March, while Hack reportedly got out in December."
For more Crane Data News mentioning stablecoins, see these articles: "TerraUSD Crash, Vanished Savings" (5/31/22); "MFI Awards Given to Top Funds of 2021; Capital Advisors on Stablecoins" (1/13/22); "Weekly MF Portfolio Holdings; Western's Straker Reviews Stablecoins" (12/1/21); "Tether Hits Keep Coming: WSJ, PWG, CNBC; Taming Wildcat Stablecoins" (7/21/21).
In related news, Bloomberg writes that "JPMorgan Finds New Use for Blockchain in Trading and Lending." They say, "JPMorgan Chase & Co is using blockchain for collateral settlements, the latest Wall Street experimentation with the technology in the trading of traditional financial assets. The bank's first such transaction came on May 20, when two of its entities transferred the token representation of BlackRock Inc. money market fund shares as collateral on its private blockchain. The effort will allow investors to pledge a wider range of assets as collateral and use them outside of market operating hours, according to New York-based JPMorgan." (See also our News, "Franklin Blockchain MF Picks Curv" (11/22/19); "Franklin Files for Blockchain Enabled U.S. Govt Money Market Fund" (9/4/19); and, "Blockchain Euro CP Test Completed" (2/25/19).
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 27) includes Holdings information from 64 money funds (up 1 from a week ago), which represent $2.148 trillion (up from $1.912 trillion) of the $4.952 trillion (43.4%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our May 11 News, "May MF Portfolio Holdings: Treasuries Plummet, Time Deposits Higher," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.073 trillion (up from $973.4 billion a week ago), or 49.9%; Treasuries totaling $788.1 billion (up from $725.7 billion a week ago), or 36.7%, and Government Agency securities totaling $136.2 billion (up from $111.1 billion), or 6.3%. Commercial Paper (CP) totaled $47.4 billion (up from a week ago at $36.3 billion), or 2.2%. Certificates of Deposit (CDs) totaled $39.9 billion (up from $18.4 billion a week ago), or 1.9%. The Other category accounted for $39.8 billion or 1.9%, while VRDNs accounted for $24.2 billion, or 1.1%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $788.1 billion (36.7% of total holdings), the Federal Reserve Bank of New York with $778.7B (36.2%), Federal Home Loan Bank with $79.6B (3.7%), BNP Paribas with $48.6B (2.3%), Federal Farm Credit Bank with $45.1B (2.1%), RBC with $31.9B (1.5%), Fixed Income Clearing Corp with $24.5B (1.1%), Societe Generale with $19.0B (0.9%), Mitsubishi UFJ Financial Group Inc with $18.1B (0.8%) and Sumitomo Mitsui Banking Corp with $16.5B (0.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($281.6B), Goldman Sachs FS Govt ($208.0B), Morgan Stanley Inst Liq Govt ($161.9), Dreyfus Govt Cash Mgmt ($118.9B), Fidelity Inv MM: Govt Port ($117.8B), Allspring Govt MM ($116.1B), Goldman Sachs FS Treas Instruments ($113.1B), State Street Inst US Govt ($90.0B), JPMorgan 100% US Treas MMkt ($90.0B) and First American Govt Oblg ($86.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
