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Stablecoins could be more secure than deposits kept at commercial banks, as stated by Diogo Monica, general partner at Haun Ventures.
During a panel discussion entitled “Stablecoins: Programmable Money in a Digital World” at the Proof of Talk conference in Paris on June 10, Monica explained that numerous stablecoins are supported by reserves at globally systemically important banks (G-SIBs) or in short-duration US Treasury bills, which he believes to be more reliable than commercial bank deposits.
“It’s decidedly much better than possessing a dollar in a commercial bank,” Monica remarked.
Monica’s statement highlighted that a deposit at a commercial bank is a liability for that bank, which could have repercussions for the creditor if the bank collapses and they are not protected by depositor insurance. A dependable stablecoin issuer, on the other hand, is expected to depend on G-SIB deposits or short-term treasury bills instead, which are arguably more secure.
In simpler terms, Monica contended that stablecoins signify a claim to premium collateral rather than an uncertain regional bank. Nonetheless, stablecoins and their issuers frequently introduce their unique category of risk.
Related: Tether USDT stablecoin displayed on Bolivian store price tags
Tether case emphasizes stablecoin risk
Although stablecoins may promise enhanced collateralization theoretically, their dependability significantly hinges on the actions of the issuing organization. Tether, the largest centralized stablecoin issuer by market capitalization, has endured consistent scrutiny concerning transparency and risk oversight.
In late 2018, Crypto Capital — the payment processor associated with Tether-linked cryptocurrency exchange Bitfinex — lost access to roughly $850 million in exchange assets. Court documents illustrate how this event led Tether to lend at least $625 million of its reserves to Bitfinex to maintain the platform’s solvency.
“At no point did Bitfinex or Tether inform the market that Tether had transferred at least $625 million to Bitfinex, or that Bitfinex had faced severe liquidity challenges,” the court documents stated.
In an affidavit submitted on April 30, 2019, Tether’s general counsel mentioned that USDt (USDT) was approximately 74% backed by cash and equivalents due to the loan. The stablecoin sustained its liquidity until Bitfinex completely repaid its debt to Tether, wiring the final $550 million in early 2021.
Related: Tether aims to open-source Bitcoin mining OS; CEO mentions ‘no requirement’ for third-party vendors
Lack of transparency remains a concern
Even after releasing reserve attestations in recent years, Tether has yet to perform a complete independent audit. In March, CEO Paolo Ardoino declared that the company is “engaging with a Big Four accounting firm” as it seeks a long-anticipated audit of its reserves. However, no audit has been disclosed so far.
This absence of guarantees led Cyber Capital founder Justin Bons to assert that Tether is “one of the most significant existential threats to crypto as a whole” in late 2024. He commented at that moment:
“An ‘Auditor’s Report’ or an ‘Accountant Report’ isn’t a formal audit whatsoever! Notwithstanding the assertions, Tether has never submitted its claimed reserves to a legitimate unrestricted, third-party audit!”
Magazine: Crypto aimed to topple banks, but is now mirroring them in stablecoin conflict
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