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Wall Street's Cantor Fitzgerald manages $39 billion for stable coin Tether

Breaking: The Secretive Wall Street firm that oversees Tether's billions of dollars

February 10, 2023
8 Minutes
minute read

Wall Street runs billions of dollars in Treasury bonds backing the world's most traded cryptocurrency. 

According to people familiar with the matter, Tether Holdings Ltd., the secretive Hong Kong-based owner of stablecoin tether, uses Cantor Fitzgerald to oversee its $39 billion bond portfolio. There hasn't been much information available about how Tether managed those assets. 

Over the years, Tether has been scrutinized and fined over how it manages and discloses the assets underpinning its stablecoin. By releasing reports from accounting firms, it has attempted to assuage concerns about its holdings. As soon as it reached a settlement with a regulator, it began moving its reserves to the Wall Street brokerage. 

According to TradeAlgo, the securities are part of $69 billion in bonds, cash, and loans that back Tether, the third-largest cryptocurrency by market cap and most traded by volume.

Tether's stability-each coin is always supposed to be worth $1-is crucial to the cryptocurrency ecosystem. Tether's value depends on investors' faith in the assets backing it. As a result, the company is similar to a bank or money market fund. In addition, it is required to manage and trade portfolios in a sophisticated manner, just like those institutions.

In order to get a chance to manage some of the billions of dollars in assets that some cryptocurrency companies have amassed, Wall Street firms are willing to look past regulatory and governance concerns.

After a series of failures in the crypto industry, U.S. regulators informed banks last month that they would review banks' proposals to engage in the crypto market with caution. 

It has sometimes been difficult for other U.S. financial institutions to participate in Tether's business. Wells Fargo & Co. stopped processing the company's wire transfers in 2017 as a correspondent bank.

Neither Tether nor Cantor responded to requests for comment.

Though Tether is an important player in the crypto ecosystem, little information has been shared about its ownership or holdings. Through open records requests, it has asked courts to prevent the name of its chief investment officer from being disclosed. According to TradeAlgo estimates, 86% of the company is owned by four men and its executives have little experience in finance at that scale.

There have been some missteps in the past as a result of that. A settlement in 2021 found that Tether had regularly misrepresented the true state of its reserves to the public between 2016 and 2019. A settlement also prohibited the company from offering its products to residents of New York. There is no longer an option for U.S.-based users to use the platform or for the company to operate in the U.S.

There have never been audited financials released by Tether. Following one of the settlements, the company began publishing more information on its holdings. According to the company's most recent data, it ended 2022 with $67 billion in reserves backing the $66.1 billion of tether it issued after generating $700 million in profits. 

According to the company, it no longer holds any commercial paper, reduced its loan exposure, and held $59.2 billion of Treasurys, representing 59% of its portfolio. Additionally, billions of dollars were held in money-market funds, cash, reverse repurchase agreements, corporate bonds, and precious metals. 

One of the largest Wall Street trading intermediaries, Cantor, has been interested in crypto for years. A small futures exchange run by the company announced it would offer futures contracts tied to bitcoin prices in 2017. 

On a conference call with analysts last year, Cantor's affiliate BGC Partners announced plans to launch a crypto exchange by 2023. 

Because of the firm's aggressiveness in the past, it has entered more risky business lines. A sports gambling affiliate of the company paid $22.5 million to settle a money laundering and illegal gambling investigation in 2016. 

The hiring of Cantor gives Tether access to a firm that has deep expertise in the Treasury market. Cantor is one of the 25 so-called primary dealers for the U.S. Treasury market, which allows it to trade directly with the Federal Reserve Bank of New York and underwrite government debt sales. 

Bryan Curtis
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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