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Stablecoin Tether trades commercial paper holdings for US Treasuries

The world’s largest stablecoin issuer said Thursday it has moved all its commercial paper holdings into US Treasuries.

Since July 1, Tether (USDT) has exchanged approximately $ 3.5 billion of unidentified unsecured corporate notes or commercial paper for T-bills, according to a blog post from Tether. The coin holds $ 68 billion in circulating supply, representing 46% of the stablecoin market, according to DeFi Llama.

The development follows years of concern from regulators across the world that crypto’s largest stablecoin, which is pegged to traditional currencies such as the US dollar, Euro and Mexican peso, could face heightened redemption issues by holding billions of dollars in unsecured corporate notes.

Smartphone with Tether logo is placed on displayed US dollars in this illustration taken, May 12, 2022. REUTERS / Dado Ruvic / Illustration

Smartphone with Tether logo is placed on displayed US dollars in this illustration taken, May 12, 2022. REUTERS / Dado Ruvic / Illustration

Trading volume in stablecoins is the most thriving part of daily crypto markets. For most of this year, this subset of crypto assets has made up 87% to 94% of all crypto trading volume, according to Coinmarketcap.

Tether and other stablecoins are being considered for global payments use by companies ranging from Visa to BlackRock. As a result, stablecoins have also faced major scrutiny for their wide use and not offering the same degree of transparency as regulated banking entities.

In May, a bank run on algorithmic stablecoin TerraUSD sparked a collapse of the Terra blockchain ecosystem, which evaporated over $ 40 billion in investor funds in days.

During the period, Tether’s own price came under pressure against its own run in which the issuer redeemed billions of dollars in a matter of days.

BRAZIL - 2022/09/20: In this photo illustration, the Tether logo seen displayed on a smartphone.  (Photo Illustration by Rafael Henrique / SOPA Images / LightRocket via Getty Images)

BRAZIL – 2022/09/20: In this photo illustration, the Tether logo seen displayed on a smartphone. (Photo Illustration by Rafael Henrique / SOPA Images / LightRocket via Getty Images)

Paolo Ardino, Tether’s chief technology officer, told Yahoo Finance at the end of May that Terra’s collapse would hasten stablecoin regulation.

Though there is a majority consensus among analysts that major stablecoins such as Tether (USDT), Circle’s USD coin (USDC), and Binance’s BUSD carry less risk in design than Terra’s defunct coin, financial authorities still say they could pose problems.

As recently as last week, the Financial Stability Oversight Council (FSOC) warned that if cryptocurrencies, including stablecoins, continue to grow and intermingle with traditional markets, they could present a major vulnerability.

MakerDao, issuer of Dai, a smaller DeFi-focused stablecoin, has also recently moved $ 500 million in holdings to US Treasuries from Circle’s USD coin. The decision follows the rising yields for US Treasuries as the yields drop across much of the crypto market, according to Connor Ryder, a researcher with Kaiko.

As of June 30, Tether holds as much as 8.36% of its money in digital tokens, 6.7% in secured loans, 5.25% in corporate bonds, funds and precious metals and 79.6% in cash and cash equivalents such as US Treasuries.

Circle, the second largest stablecoin issuer, holds all its reserves for USD coin in cash and short-duration US Treasuries since June of last year. According to an SEC filing, the decision was made so the company wouldn’t be regulated under the agency’s 1940 Investment Act, which it said in the filing “could have a material adverse effect on our business.”

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers

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