Tether, the largest crypto stablecoin, has come under scrutiny due to its previous backing by Chinese securities. A Bloomberg investigation revealed that Tether's reserves included billions of dollars in short-term loans to Chinese companies and a significant loan to the crypto platform Celsius Network. While Tether denied exposure to the debt of China Evergrande Group, it did not disclose its holdings of securities from other Chinese companies.

The quality of assets supporting Tether (USDT) has long been a point of concern as it plays a vital role in cryptocurrency markets. Traders rely on this stablecoin, with a circulation of approximately $83.5 billion, to facilitate fund transfers between exchanges, enter and exit crypto markets, and seek stability during periods of high volatility. If Tether fails to redeem tokens for dollars, confidence in cryptoassets could be shaken.

Tether previously reached a settlement with the New York Attorney General's office over allegations of misleading statements about its reserves and concealed losses. The company provided documentation, including letters, bank accounts, reserve holdings, and wallet addresses, revealing its assets as of March 31, 2021. These documents, released in response to a freedom of information request, also outlined procedures for detecting money laundering.

Tether claimed to be in a different position than two years ago, highlighting its liquidity, high-quality reserves, and ability to support any redemption size. In July 2022, Tether stated that it held no Chinese commercial paper and aimed to eliminate its $3.7 billion commercial paper holdings entirely. The company has not yet commented on the recently released documents.

According to the documents, Tether held securities issued by major Chinese state-owned companies such as Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., and Agricultural Bank of China Ltd. The maturity dates of these securities ranged from 2020 to 2021. Additionally, Tether held securities from companies like Deutsche Bank AG, Barclays Bank Plc, and ArcelorMittal SA.

Stablecoin issuers, including Tether, claim that their tokens are backed one-to-one with cash and cash-equivalents to maintain their peg to assets like the US dollar. However, there are other stablecoins with different mechanisms, although they are less commonly used compared to USDT and the second-largest stablecoin, USDC.

The released documents shed light on Tether's banking relationships, lending activities, and reserve asset investments as of March 2021. They revealed significant loans provided by Tether in USDT to third parties, with collateral in the form of digital assets or securities. Tether's lending program amounted to $5.1 billion with fewer than 30 borrowers. The company also made a loan to Bitfinex, which repaid the full principal in early 2021.

Tether's controversies and the transparency of its backing have raised concerns within the crypto industry. The revelations surrounding its previous Chinese securities holdings further contribute to the ongoing debate about the stability and regulation of stablecoins.