The collapse of FTX and Alameda Research hasn’t affected the USDT stablecoin, thanks to Tether’s issuance policy.
Tether, the company issuing the USDT stablecoin, has revealed that the recent collapse of the FTX exchange and its Alameda Research hedge fund, doesn’t have a negative impact on its ecosystem.
According to Tether’s latest blog post, the company’s issuance policy protects it from Alameda’s failure. Alameda Research is one of the leading issuers of the USDT stablecoin.
Tether explained that its USDT stablecoins are issued when institutional parties send USD to Tether. The company issues the USDT on a 1:1 basis corresponding to the amount of USD sent to Tether.
Tether added that it converts the USD into reliable, liquidity and conservative collateral ( US Treasuries, etc.). This implies that all USDT stablecoins are fully collaterised by Tether’s reserves, and every USDT can be redeemed 1:1 with USD.
As a large issuer of USDT, Alameda Research sent Tether USD, and Tether issues USDT. The USD from Alameda Research remains in Tether’s custody, but they are not on Alameda’s balance sheet. The collateral backing Alameda’s USDT is not on Alameda’s balance sheet, Tether added.
Tether revealed that Alameda can still redeem any USDT they have USD via Tether’s redemption facility. The company further added that it doesn’t have any outstanding loans of USDT, of Tether’s reserves, or of any other funds whatsoever. Tether wrote that;
“The main problem countless other companies are facing is that they recklessly lent Alameda various assets relying on extremely illiquid collateral. Since Alameda cannot repay those loans at this time, those companies have a hole in their balance sheet. This is not how USD₮ issuance works and is not behavior Tether engaged in with Alameda in any way.”
Tether also clarified its lending process. The stablecoin issuer said the only time it engages in lending is when it is based on over-collaterisation with extremely liquid assets.
Some cryptocurrency lenders, including Voyager Digital and Celsius, have been struggling in recent months. Binance US is preparing another bid to acquire Voyager Digital following FTX’s bankruptcy proceeding.
Tether pointed out that it believes the approach of many lenders in this industry has been reckless, lending huge quantities of money, and accepting FTT (and other illiquid assets) and pinky swears as collateral.
Despite the struggles of some companies like Alameda Research and Celsius, Tether said its operations were not disrupted.