- Tether, the stablecoin issuer, has $30.8 billion in commercial paper and certificates of deposit.
- A worsening crisis in China could have a significant impact on the commercial paper market.
Tether, the stablecoin issuer, has stated that it does not hold any commercial paper issued by the Chinese real estate conglomerate Evergrande. This comes amid concerns that Evergrande’s difficulties will have an impact on the commercial paper market.
“Tether does not and has never held any commercial paper, other debt, or securities issued by Evergrande,” said a Tether spokesperson. “As we have stated in our published statements and in our most recent assurance attestation with a reporting date of June 30, 2021, the vast majority of Tether’s commercial paper is in A-2 and above rated issuers.”
Tether is the creator of USDT, the largest stablecoin in the crypto markets, with a market cap of $68 billion. The stablecoin is backed by a variety of assets, the majority of which are held in commercial paper, certificates of deposit, and treasury bills. (Also included are loans, bonds, cash, and cryptocurrencies.)
Tether’s assets are nearly half commercial paper and certificates of deposit, totaling $30.8 billion on June 30, 2021 — the date specified in its most recent assurance report. According to a report, the sheer size of these holdings places the firm in the same league as investment firms Vanguard and BlackRock.
Tether has provided little information about the location of this commercial paper. When asked if it held any Chinese commercial paper, the company stated that it does hold international commercial paper but would not provide any further information. It did, however, tell the FT that it has regional exposure limits.
China is experiencing a growing crisis.
Evergrande, which has amassed a $300 billion debt and is struggling to pay interest, has sparked widespread concern in China. If the company went bankrupt, it would have a massive impact on the financial system.
Evergrande has been looking for ways to get out of its mounting debt.The firm raised $8 billion by August, but it was insufficient. Fitch Ratings stated on September 8 that the company “appears likely” to default on its debt. Since then, Chinese authorities have informed banks that Evergrande will not pay interest on its loans next week.
In a recent article, Nucleus Wealth chief strategist David Llewellyn-Smith stated, “This $300 billion debt monster is potentially China’s Lehmann Brothers, trading in subterranean junk debt to Chinese (and global) counterparties (which may include Bitcoin via Tether) at spreads that imply insolvency.”
Evergrande is the largest commercial paper issuer in the Chinese real estate market. It had $32 billion in commercial paper at the end of 2020. Because the outlet has other units that also issue commercial paper, the actual figure could be even higher, according to the outlet.
“There is no doubt that [a possible collapse] will have a significant impact on the commercial paper markets.” Whatever commercial paper you hold, bonds and commercial paper would suffer, and some issuers may even go bankrupt,” tweeted Adam Cochran, partner at Cinneamhain Ventures.
As a result, even though Tether claims it does not hold commercial paper issued by Evergrande, a disruption in the commercial paper market could have far-reaching consequences.