Tether Holdings Ltd, the Hong Kong-based company behind the stablecoin Tether, is reportedly using Cantor Fitzgerald to help manage its $39 billion bond portfolio, according to sources familiar with the matter. The details of Tether’s management of these assets have not been widely known, but the company has attempted to quell concerns by releasing reports from accounting firms. The move to Cantor Fitzgerald reportedly occurred in late 2021, shortly after Tether reached a settlement with a regulator.
Cantor Fitzgerald Involvement with Tether’s $39B Holdings
Tether’s stability, with each coin pegged to $1, is a crucial component of the cryptocurrency ecosystem and relies on investor faith in the assets that back the coin. This makes Tether similar to a traditional financial institution, like a bank or money-market fund, and requires sophisticated portfolio management and trading strategies. The involvement of Cantor Fitzgerald indicates that some Wall Street firms are willing to overlook the regulatory and governance challenges of the cryptocurrency space to manage a share of the billions of dollars in assets held by crypto companies.
However, U.S. regulators have recently advised banks to exercise caution when reviewing proposals to engage with the crypto market, following the failures of several crypto companies. In the past, some U.S. financial institutions have been reluctant to work with Tether due to its lack of transparency and history of regulatory issues. In 2017, Wells Fargo stopped processing Tether’s wire transfers as a correspondent bank for its Taiwanese accounts.
Stability to Tether’s Crypto Ecosystem
Tether has faced criticism and paid fines over how it manages and communicates information about its assets and has never released audited financials. As part of a settlement reached in 2021, Tether has begun publishing more information about its holdings. The company recently reported that it ended 2022 with $67 billion in reserves, backing the $66.1 billion Tether issued, after generating $700 million in profits in the fourth quarter of 2022. Tether’s portfolio was found to include $39.2 billion in Treasurys, accounting for 59% of the portfolio, and other assets such as money-market funds, cash, reverse repurchase agreements, corporate bonds, and precious metals.
Cantor Fitzgerald, a privately held global financial firm and one of the largest intermediaries for Wall Street traders, has had a keen interest in cryptocurrency for years. In 2017, the firm announced plans to offer bitcoin futures contracts, and an affiliate, BGC Partners, is reportedly planning to launch a cryptocurrency exchange in the first quarter of 2023. Despite Cantor Fitzgerald’s aggressiveness in the market, it has also taken on risky business lines in the past, with a sports-gambling affiliate of the company paying $22.5 million to settle an investigation into its involvement in illegal gambling and money laundering in 2016.
Tether’s Credibility Boost
By hiring Cantor Fitzgerald, Tether is getting a firm that is deeply entrenched in the Treasury market and is one of the 25 primary dealers for the U.S. Treasury market, allowing it to trade directly with the Federal Reserve Bank of New York and underwrite sales of U.S. government debt. Despite its importance to the cryptocurrency ecosystem, Tether remains shrouded in secrecy, and the company has not responded to requests for comment on its use of Cantor Fitzgerald to manage its bond portfolio.