In an analysis of stablecoin security, Haun Ventures General Partner Diogo Monica has argued that certain stablecoins may be safer than deposits held at traditional commercial banks, primarily backing them with reserves at globally systemically important banks (G-SIBs) or short-term U.S. Treasury bills.

Globally Systemically Important Banks (G-SIBs)

Designated banks deemed essential to financial stability, subject to stricter regulatory oversight.

Monica’s Comparative Argument

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 asserted that stablecoin backing typically relies on assets perceived as safer than commercial bank deposits.

“It’s actually much better than having a dollar in a commercial bank,” Monica said.

Monica explained that bank deposits are liabilities for the institution, with potential depositor losses in bank failure scenarios often beyond insured amounts. Conversely, stablecoin reserves anchored in G-SIB assets or near-cash equivalents, like short-term Treasury bills, offer enhanced security.

Tether Case Highlights Disparities

Despite the theoretical backing, stablecoin reliability hinges heavily on the issuer’s practices. The largest stablecoin by market cap, Tether (USDT), exemplifies these concerns amid repeated allegations over transparency.

Misappropriation Extended to Cryptocurrency Exchange

In late 2018, a major breach impacted Tether-related operations. Crypto Capital, handling Bitfinex’s Tether-issued cryptocurrency transactions, lost access to approximately $850 million in exchange assets. Subsequent legal filings revealed that Tether provided at least $625 million in its reserves to Bitfinex.

“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 stated.

According to Tether’s filings, this loan caused the stabilcoin’s backing to fall below 100%, registering at approximately 74% as cash and equivalents due to the reserve transfer. The situation persisted until Bitfinex repaid its debt in early 2021.

Transparency Stumbles Despite Recent Measures

Although Tether has provided reserve attestations since 2019, a comprehensive, independent audit has remained elusive despite CEO Paolo Ardoino formally stating in March 2024 that discussions with “Big Four accounting firm[s]” were underway.

“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!” – Cyber Capital Founder Justin Bons, October 2024.

Critics contend that without rigorous, independent auditing, the safety claims regarding stablecoin reserves cannot be definitively verified.