Tether has held some reserves with Bahamas bank Capital Union

Tether has held some of its reserves at a small bank in the Bahamas called Capital Union, people familiar with the matter said, shedding further light on how the group manages the $73 billion stablecoin that underpins the crypto market.

The stablecoin issuer has generally declined to disclose where exactly it holds the assets behind its namesake token, known as USDT, noting that as a private company it is not required to disclose information about its financial partners.

Tether has come under renewed scrutiny in recent weeks after USDT briefly traded at just 95 cents, well below the $1 peg it is trying to maintain. Investors have since returned more than $10 billion from Tether, which has argued that the outflows proved it has plenty of liquidity.

Launched in 2014, Tether's USDT token is widely used in cryptocurrency markets to trade Bitcoin and other major digital assets. USDT is the largest stablecoin in circulation by market value.

Tether is registered in the British Virgin Islands and promises to redeem USDT one-to-one with dollars if necessary.

The company's ability to deliver on this promise ultimately depends on the liquidity and security of its reserves, which it says include bank deposits, U.S. Treasury securities, commercial paper, precious metals and cryptocurrencies.

Capital Union said “the only information we make publicly available about our company is contained in the annual report” on its website, while Tether did not comment on its relationship with the bank.

Tether previously announced that since 2018 it has had a banking relationship with another bank in the Bahamas, Deltec Bank & Trust, whose chairman Jean Chalopin co-created the cartoon Inspector Gadget in the 1980s.

In the past, Tether struggled to gain access to the traditional financial system. Last year, U.S. regulators said Tether had previously misled users about its reserves, in part because it used bank accounts in the names of its general counsel and its sister exchange Bitfinex. Tether and Bitfinex agreed to pay $60 million in two settlements in which they neither admitted nor denied wrongdoing.

In an interview with the Financial Times this month, Tether Chief Technology Officer Paolo Ardoino said the most liquid reserves, cash deposits, were held at two banks in the Bahamas. He added that Tether has “strong banking relationships” with “more than seven, eight banks around the world.”

Capital Union is another bank in the Bahamas that has used Tether, people familiar with the matter said. The boutique bank was founded in 2013 and had $1 billion in assets at the end of 2020, the most recent year for which public accounts are available. Capital Union Chairman Lonnie Howell previously co-founded EFG International, a listed Swiss bank.

It is unclear exactly how much of Tether's reserves were held through Capital Union or when the relationship began. Chalopin said in a 2021 interview with Bloomberg that Deltec held only about a quarter of Tether's reserves, about $15 billion at the time, in the form of cash and low-risk bonds.

Capital Union began publishing research reports on crypto in June 2021. Later that year, it appointed a manager of digital assets and other business areas, according to the person's LinkedIn profile, which said that in that job she would have "created and implemented digital asset reconciliation procedures" and "automated digital asset accounting procedures using Excel to reduce processing time and errors."

In April, Capital Union announced that it had begun using compliance software from Chainalysis, a major blockchain data company.