USDT is fully backed by reserves of the Tether Group. The reserves are primarily invested in US treasury bills, including indirect exposure via money market funds and overnight reverse repo agreements. A minority of the reserves are also invested in bonds, secured loans, gold, bitcoin, and other assets.
Currently, 79% of reserves are invested in US treasury bills, including the indirect exposure. This asset presents some of the lowest credit and duration risks, while trading in a highly liquid secondary market. Exposure to US treasury bills has gradually increased from 24% in June 2021. However, Tether may decide to reduce this exposure once again as the Federal Reserve begins to cut interest rates.
The remaining 21% of reserves are invested in risky assets like secured loans, corporate bonds, gold, and bitcoin. To a large but insufficient extent, exposure to these assets is mitigated by an equity buffer, which currently stands at 5% of USDT supply.
Tether provides limited transparency into reserves. Although the quality of quarterly disclosures has improved over the years, the issuer still does not disclose the full composition of assets.
In March 2023, Tether began segregating exposure to corporate bonds, gold, and bitcoin. A quarter later, the issuer began segregating indirect exposure to US treasury bills via money market funds and overnight reverse repo agreements. Currently, 3% of reserves still remain undisclosed as “other investments”.
Tether does not publicly disclose the custodians that hold its reserves. Preferably, the issuer holds its reserves with regulated custodians based in reputable jurisdictions. Based on publicly available reporting, the issuer has previously maintained custody accounts at the following banks: Deltec Bank & Trust, Ansbacher Limited, Capital Union Bank, and Far East International.
Cantor Fitzgerald’s CEO Howard Lutnick has stated the firm holds a portion of US treasury bills held in Tether’s reserves. Cantor Fitzgerald is one of 24 primary dealers authorized to trade US government securities directly with the Federal Reserve Bank of New York.
After Tether’s relocation to El Salvador, Tether International SA de CV became the sole issuer of USDT within the Tether Group. Net assets owned by this entity are considered as reserves backing USDT. These reserves are not isolated from the company’s corporate treasury.
For several months in 2017, over 85% of reserves were held in a bank account owned by Bitfinex, a sister company of Tether. Remaining reserves were held in a bank account owned by Stuart Hoegner, the company’s general counsel. Both were accounted as receivables in the issuer’s books.
In 2018, Tether gave $625M to Bitfinex after the exchange lost access to $850M that it held with a payment processor. This was accounted as a loan in the issuer’s books.