Tether
Tether is backed by a very wide range of securities, and isn’t subject to US regulations as it is domiciled abroad:
You can read the latest (March 2022) report here. It’s pretty flexible what Tether hold as collateral, which allows them to earn profits, but to earn profits one must take risk, so ultimately the more flexibility on assets held, the more risk on the issued token USDT.
Tether is also a private company, so it doesn’t disclose who the secured loans are to and who the commercial paper is with — so there isn’t a way to assess the risk profiles of that collateral.
USDC
Here is the latest report on USDC. A few interesting notes:
- It seems that backing assets are only US dollars and short-dated US treasuries (which would generate a tiny amount of interest for Circle). If true, that would be a good sign:
- Notice how the above snippet (from March 2022) differs signficantly from March 2021 where “approved assets” were used as collateral. This is a clear tightening of rules to improve collateral quality:
- Interesting that, out of over $50B USDC (in the 2022 March report), there are about $2M that have be classified as “access denied”. This number seems small but shows that your USDC can be blocked if a US court provides an order.
USDP
Paxos issues a dollar backed coin that is also (apparently) cash and US treasuries backed — see the April report for 2022. This seems unchanged in approach from April 2021. Note that USDP is specifically licensed by New York Authorities, and my impression is that New York provides a higher bar than a general US regulatory bar.
Overall Summary
Certainly there is a lot more flexibility and variability in the collateral used by Tether (so Tether is likely more profitably but also more risky). USDC seems to have moved to being like USDP and backed by cash and US treasuries — which limits returns, but improves collateral quality.
Some side notes:
- Binance USD is also issued by Paxos and follows the same regulations in New York as USDP. However, Binance USD is on the Binance smart chain, which is heavily centralised in the control of Binance company.
- Interestingly, lots of crypto is lost forever because of being sent to wrong addresses or seed phrases being lost. So, if a stablecoin is fully collateralised, it is actually somewhat overcollateralised, but it is hard to tell by how much.
Disclaimer — as I pointed out above for USDC, these cryptocurrencies can be seized by governments and or the controlling companies. Further, there can be smart contract errors in the chains that allow transfer of the tokens. There may also be other risks I cannot think of. I personally do not hold much in stablecoins at all because of these risks, although they can be convenient for transactions.
