Kiffmeister’s #Fintech Daily Digest Update (05/13/2021b)*

Tether’s First Reserve Breakdown Shows Token 49% Backed by Unspecified Commercial Paper

For the first time, Tether revealed the breakdown of its reserves that back its USDT stablecoin. As of March 31, 2021 they were composed of 49.6% commercial paper, 18.4% fiduciary deposits, 12.6% secured loans (none to affiliates) and 10% in corporate bonds and precious metals. The remaining 9% was held in the form of various cash equivalents (see below).  

The new report is part of Tether’s efforts to stay in compliance with a settlement agreed to with the New York Attorney General (NYAG) after the prosecutor investigated it and its sister crypto exchange Bitfinex over the cover-up of some $800 million in losses. Bitfinex and Tether paid an $18.5 million dollar fine and agreed to provide quarterly breakdowns of its reserves as part of the settlement. 

Hong Kong Looks to Expand Cross-Border Tests of Digital Yuan

The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) recently tested cross-border digital yuan (e-CNY) transactions, involving a PBOC-designated bank, as well as merchants and bank staff. Following up on that, the HKMA is “discussing and collaborating with the PBOC on the next phase of technical testing, including the feasibility of broadening and deepening the use of e-CNY for cross-boundary payments. 

DeFi and the Future of Finance

According to this paper co-authored by Campbell Harvey, decentralized finance (DeFi) offers a number of potential solutions to the problems inherent in the traditional financial infrastructure. While there are many fintech initiatives, the paper argues that the ones that embrace the current banking infrastructure are likely to be fleeting. It argues those initiatives that use decentralized methods – in particular blockchain technology – have the best chance to define the future of finance. 

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3 thoughts on “Kiffmeister’s #Fintech Daily Digest Update (05/13/2021b)*

  1. A couple of critical commentaries on the Tether report:-

  2. According to Paul Amery (New Money Review): Permissible investment rules for US money transmitters vary state by state but typically allow them hold corporate bonds, currency, foreign government debt, asset-backed and mortgage-backed securities. US dollar money market funds, which closely resemble stablecoins in their objectives, operate according to more detailed and stringent reserve and disclosure obligations set by the Securities and Exchange Commission (SEC). Permissible investments are limited to cash, direct obligations of the US government, certain securities issued by US government instrumentalities with a remaining maturity date of 60 days or less, and securities that mature or are subject to a demand feature exercisable and payable within five business days.

  3. Francis Coppola weighs in on the Tether scandal: "Smoke and mirrors may maintain the peg for a while, but people won’t be fooled forever. If Tether is serious about delivering “unrivalled transparency”, it should publish the composition of its assets in sufficient detail to eliminate all doubts about their safety and liquidity. And if it wants the par peg to hold under all circumstances, it must significantly increase its capital. If it won’t do either of these, then eventually the mirror will crack, the peg will break and Tether will be doomed."

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