By Geoffrey Smith
Investing.com -- The organization behind Tether said on Friday it had managed to unwind its exposure to the stricken crypto lender Celsius Network without incurring losses.
Tether, the world's largest stablecoin, said that it had been able to liquidate a loan made to Celsius without loss because it had taken Bitcoin worth 130% of the loan's value as collateral. This was done "in a way to minimize as much as possible any impact on the markets," Tether said.
"In fact, once the loan was covered, Tether returned the remaining part to Celsius as per its agreement," it added.
The news comes as Celsius scrambles frantically to avoid filing for bankruptcy protection, having been reportedly urged by its lawyers and restructuring advisors to do so at the end of last month. Celsius had been forced to halt all customer withdrawals last month after being wrong-footed by the collapse of hedge fund 3 Arrows Capital, to whom it had lent money.
While the news removes specific fears that exposure to 3AC could undermine Tether's reserve backing, and thus the stability of its peg to the dollar, it nonetheless confirms suspicions that at least some of those reserves are invested in highly risky assets. According to Tether's latest publicly available information, 'other investments' including digital assets accounted for 6% of its overall reserves. It also still holds substantial amounts of commercial paper issued by companies whose identities and credit ratings aren't in the public domain.
Tether said "there is no correlation between this investment (with Celsius) and Tether’s own reserves or stability."
Tether's CTO Paolo Ardoino had said in June that Tether planned to remove any remaining doubt about the strength of its reserve backing by reducing to zero the amount it holds in commercial paper. Ardoino had said it expected to hold $8.4 billion in CP as of the end of June, and that it would reallocate that money to zero-risk Treasury bills and cash as and when the CP matured.
Tether's market cap has fallen from $83 billion before the wrenching selloff in crypto assets to around $66 billion as of Friday. The value of USDT outstanding automatically falls as investors redeem their crypto to swap it back into fiat currency.
For Celsius customers meanwhile, the liquidation of Tether's loan reduces the amount of assets left at the network's disposal as it continues to juggle its obligations. In the event of a chapter 11 filing, its depositors are likely to have the status of unsecured creditors, giving them little hope of full recovery of their assets.