Stablecoins may be safer than bank deposits: Proof of Talk panel
Stablecoins may be safer than deposits held at commercial banks, according to Diogo Monica, general partner at Haun Ventures.
Speaking during a panel discussion titled “Stablecoins: Programmable Money in a Digital World” at the Proof of Talk conference in Paris on June 10, Monica said that many stablecoins are backed by reserves held at globally systemically important banks (G-SIBs) or in short-term US Treasury bills, which he views as more secure than commercial bank deposits.
“It’s actually much better than having a dollar in a commercial bank,” Monica said.
Monica’s comment referred to the fact that a deposit at a commercial bank is a liability for the bank, with possible consequences for the creditor if the bank fails and they are not covered by depositor insurance. A reliable stablecoin issuer is expected to rely on G-SIB deposits or short-term treasury bills instead, which are arguably safer.
Put simply, Monica argued that stablecoins represent a title to top-tier collateral rather than a potentially shaky regional bank. Still, stablecoins and their issuers often introduce their very own category of risk.
Related: Tether USDT stablecoin seen on Bolivian store price tags
Tether case highlights stablecoin risk
While stablecoins may offer stronger collateralization in theory, their reliability depends heavily on the behavior of the issuing entity. Tether, the largest centralized stablecoin issuer by market cap, has faced repeated scrutiny over transparency and risk management.
In late 2018, Crypto Capital — the payment processor of Tether-tied cryptocurrency exchange Bitfinex — lost access to approximately $850 million worth of exchange assets. Court documents show how this led to Tether lending at least $625 million of its reserves to Bitfinex to keep the platform solvent.
“At no time did Bitfinex or Tether disclose to the market that Tether had transferred at least $625 million to Bitfinex, or that Bitfinex had experienced critical liquidity issues,“ the court documents read.
In an affidavit filed on April 30, 2019, Tether’s general counsel stated that USDt (USDT) was approximately 74% backed by cash and equivalents due to the loan. The stablecoin remained liquid until Bitfinex fully repaid its debt to Tether, wiring the last $550 million in early 2021.
Related: Tether plans to open-source Bitcoin mining OS; CEO says ‘no need’ for 3rd party vendors
Lack of transparency still an issue
Despite publishing reserve attestations in recent years, Tether has yet to produce a full independent audit. In March, CEO Paolo Ardoino stated that the company is “engaging with a Big Four accounting firm” as it pursues a long-awaited audit of its reserves. Still, no audit has been announced so far.
This lack of assurances led Cyber Capital founder Justin Bons to go as far as to claim that Tether is “one of the biggest existential threats to crypto as a whole” in late 2024. He said at the time:
“An ‘Auditor’s Report’ or an ‘Accountant Report’ is not a formal audit at all! Despite the claims, Tether has never submitted its alleged reserves to a real unrestricted, third-party audit!”
Magazine: Crypto wanted to overthrow banks, now it’s becoming them in stablecoin fight
