Tether: The Assets

Tether released their reserves composition:

Let's break that into a simple table:

Component	Fraction	$
Commercial Paper	49.6%	$19.9B
Fiduciary Deposits	18.7%	$7.36B
Secured Loans	12.6%	$5.03B
Bonds	10%	$4B
Cash	2.9%	$1.18B
Reverse Repos	2.7%	$1.1B
T-Bills	2.2%	$895M
Other	1.6%	$657M

Following on to an earlier discussion of the transactions and one about banking data we can now dig in. If this is all held within Deltec then these numbers must be visible in the upcoming Bahamian banking disclosures.  In particular we know that:

• The deposits will appear under assets due from other financials
• The commercial paper holdings will appear under either other financials or investments
• Same for the secured loans and bonds

There is some flexibility in how to carry the various credit instruments there, but the deposits need to appear on a bank balance sheet and as something owed by another financial.  This should be interesting.

Transactions

In that earlier discussion we posited that perhaps the real Tether workflow is:

1. A client takes out a USD loan from Deltec
2. Deltec credits their account and records a corresponding asset for the loan
3. The client transfers those USD to the Tether account
4. Client receives USDT

Given the asset composition we can now conjecture a step 5: Tether transfers USD to client in exchange for commercial paper/loan/bond.

This is not an unbacked issuance!  It is backed by an obligation from whatever client initiated this whole sequence of events in the first place.  In this case Deltec is "ok" and the liquidity problem exists between Tether and whoever is financing USDT issuance.  Deltec is merely greasing the wheels and, likely, keeping all the accounting records.

An Uneducated Guess

If we were forced to guess what happened here: step 5 was added recently to avoid claiming a large USD deposit at Deltec.  It is inconceivable the Bahamian regulator is unaware of these questions.  And they would likely look askance at a $30B+ cash deposit in one of their more heavily-questioned -- if not necessarily questionable -- banks.

It's also possible step 5 was there all along to keep these exposures at arms length from the bank.  Risk-wise they are identical, except in the case where Deltec is putting significant capital behind it's loan book.

From the banking data, if this all shows up, we will also be able to see if the "Fiduciary Deposits" are inside or outside the Bahamas.  And the commercial paper entry alone will be over 10% of total banking system assets!

And just in case anyone is thinking it: no, this is not how fiat currency & TradFi work.  There are some shared words and concepts but no.