Wall Street Firm Oversees Billions of Dollars Backing Tether
Cantor Fitzgerald helps manage $39 billion Treasury portfolio that makes up lion’s share of stablecoin’s reserves
Billions of dollars in Treasurys that back the world’s most traded cryptocurrency are being run on Wall Street.
Tether Holdings Ltd., the secretive Hong Kong-based owner of stablecoin tether, is using Cantor Fitzgerald to help oversee its $39 billion bond portfolio, according to people familiar with the matter. Details of how Tether managed those assets haven’t been widely known.
Tether has faced scrutiny and paid fines over how it manages and what it says about the assets underlying its stablecoin. It has tried to allay questions about its holdings by releasing reports from accounting firms. It began moving its reserves into the Wall Street brokerage in late 2021, around the time it reached a settlement with a regulator, one of the people said.
The securities are part of the $69 billion of bonds, cash and loans that back tether, the third-largest cryptocurrency by market cap and most traded by volume, according to CoinMarketCap.com.
Tether’s stability—each coin is always supposed to be worth $1—is a critical piece of the cryptocurrency ecosystem. It depends on investors’ faith in the assets that back tether. That makes the company similar to a more traditional financial institution such as a bank or a money-market fund. And like those institutions, it requires sophisticated portfolio management and trading strategies.
The portfolio is an indication that some firms on Wall Street are willing to look past the regulatory and governance concerns that have characterized the crypto space for a chance to manage some of the billions of dollars in assets that some cryptocurrency companies have amassed.
U.S. regulators told banks last month that they would exercise caution in reviewing banks’ proposals to engage with the crypto market after a series of failures of companies in the industry.
At times, other U.S. financial institutions have been reluctant to involve themselves in Tether’s business. In 2017, Wells Fargo & Co. stopped processing the company’s wire transfers as a correspondent bank for its Taiwanese accounts.
Tether and Cantor didn’t reply to requests for comment.
Despite Tether’s importance to the crypto ecosystem, the company hasn’t shared much information on its ownership or holdings. It has asked courts to prevent the name of its chief investment officer from being revealed or for detailed information on its holdings being made public through open records requests. Last week, The Wall Street Journal reported that 86% of the company was owned by four men and that its executives have little experience at that scale of finance.
That has in the past led to some missteps. In 2021, Tether and related companies paid $61 million to settle two investigations that found Tether had regularly misrepresented the true state of its reserves to the public between 2016 and 2019. One of those settlements also prohibited the company from offering its products and services to New York residents. The company has said it no longer operates in the U.S. or allows U.S.-based users onto its platform.
Tether didn’t admit or deny wrongdoing in either settlement.
Tether has never released audited financials. As part of one of the settlements, it began publishing more information on its holdings. The company produced its most recent data on Thursday, saying it ended 2022 with $67 billion in its reserves backing the $66.1 billion tether issued after generating $700 million of profits in the fourth quarter.
The company said that it no longer held any commercial paper, reduced its loan exposure and that the $39.2 billion in Treasurys it held accounted for 59% of its portfolio. The rest of its assets included billions of dollars held in money-market funds, cash, reverse repurchase agreements, corporate bonds and precious metals.
Cantor, a privately held global financial firm that is one of the largest intermediaries for Wall Street traders, has been interested in crypto for years. In 2017, the firm said it would offer futures contracts tied to the price of bitcoin on a small futures exchange that it runs.
An affiliate of Cantor’s, BGC Partners, was planning to launch a crypto exchange by the first quarter of 2023, Chief Executive Howard Lutnick said last year on a conference call with analysts.
The firm’s aggressiveness in the past has taken it into riskier business lines. In 2016, a sports-gambling affiliate of the company paid $22.5 million to settle an investigation into its involvement in illegal gambling and money laundering.
By hiring Cantor, Tether is getting a firm that is deeply entrenched in the Treasury market. Cantor is one of the 25 so-called primary dealers for the U.S. Treasurys market, a status that allows them to trade directly with the Federal Reserve Bank of New York and underwrite sales of U.S. government debt.