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In your chart they say they have 1.6% of their assets in digital tokens, = c. $1 bn. If those tokens go down in value by 20% they have no equity and their liabilities are worth more than their assets.
Is that true? If their digital token investments went to zero value would they have no equity? I don't understand how that would cancel out their cash reserves, precious metals, loan income, fiduciary deposits etc etc.
Stonehedge-
Is that true? If their digital token investments went to zero value would they have no equity? I don't understand how that would cancel out their cash reserves, precious metals, loan income, fiduciary deposits etc etc
They have $68.1 bn in assets and $67.9 bn in liabilities, therefore book equity (or "capital") = 68.1 - 67.9 = $200 mm.
If you reduce assets by $200 mm due to credit losses / market declines then you (obviously) reduce capital by $200 mm as there would be no offsetting reduction in liabilities (because the liabilities are pegged to the dollar). Therefore your equity goes to zero and you have no headroom if all the depositors wanted their money back.
This is why banks have capital (a surplus of asses over liabilities) to absorb losses.
NickCJ
There are two separate concepts here and it's important not to mix them.
1. Solvency
Surplus of assets over liabilities = equity. Solvency is the ability for the balance sheet to absorb asset losses without impairing depositors (i.e. house is not worth enough to pay off mortgage).
2. Liquidity
How quickly can you turn assets into cash to pay depositors that want their money back. Problem comes if you have liabilities that are repayable on demand (like current accounts) but illiquid assets (like mortgages).
Tether is more than fine on #2 (on their unaudited numbers) but I worry about #1. It's also worth noting that the business model has evolved hugely since it was originally set up as a 1:1 cash to stablecoin proposition.
In your chart they say they have 1.6% of their assets in digital tokens, = c. $1 bn. If those tokens go down in value by 20% they have no equity and their liabilities are worth more than their assets.