Tether acknowledges money at troubled EQIBank, says stake is minimal

USDT itself shows little strain, so the immediate market impact should be small unless Tether's exposure is bigger than stated. The news adds to a week filled with counterparty concerns, arriving a day after Bitget's breach, and could bring fresh attention to the banks stablecoin issuers rely on. Offshore banks that serve crypto clients may face more scrutiny from customers and regulators. For traders, the key metric to watch is USDT's dollar price: a persistent deviation from $1 would be more significant than the story itself.

Tether's holdings at EQIBank are negligible on its balance sheet, yet the case serves as a reminder that a stablecoin's safety depends on the banks that hold its reserves.

Summary:

• Tether confirmed that it holds funds at EQIBank, a Dominica-licensed offshore bank facing possible liquidation. The Information first reported it on 24 September.
• The exposure is less than 0.034% of its total assets, under $64 million based on its Q2 reserves report. Tether has not disclosed the exact amount.
• US authorities seized about $89 million linked to EQIBank, held through accounts at US payment processor Capstone Ltd. A forfeiture complaint filed in July seeks $84.2 million.
• EQIBank says the seized funds are about 80% of its cash holdings. It warned on 9 September that it could be forced into liquidation, and it is challenging the seizure in a California federal court.
• Tether says the impact on its reserves will be limited, but what it gets back depends on any liquidation proceedings.
• USDT has held its $1 peg.

Tether, the issuer of the leading stablecoin, has acknowledged that it has cash trapped at EQIBank, a small offshore lender that has cautioned it may face liquidation after US authorities seized most of its cash. Tether says the amount is small, below 0.034% of total assets, or less than $64 million according to its latest quarterly reserves report. The Information first covered the story on Thursday.

For those unfamiliar with crypto, here is some context. Tether issues USDT, a stablecoin designed to always be worth one US dollar. To maintain that peg, Tether holds reserves of cash, government bonds and other assets to back each token. Some cash must be in bank accounts, and this story concerns what happens when one of those banks runs into trouble.

EQIBank holds a license in Dominica, a Caribbean island nation. US authorities seized roughly $89 million linked to the bank through accounts at US payment processor Capstone Ltd. Prosecutors filed a forfeiture complaint in July seeking to keep $84.2 million permanently, and EQIBank is contesting the seizure in a California federal court. The bank states that the seized funds represent about 80% of its cash and warned on 9 September that losing them could lead to liquidation, the process of winding down a business and repaying creditors.

Tether has not disclosed its exact deposit at EQIBank. It says the overall impact on its reserves will be limited, but acknowledges that the eventual recovery depends on liquidation outcomes. In a liquidation, depositors may wait a long time and potentially receive less than they deposited.

The market appears to accept Tether's assurances. USDT traded near $0.9997 early Friday afternoon in Asia, virtually unchanged from its dollar peg, indicating that traders view this as a contained issue rather than a risk to Tether's backing.

The wider lesson concerns counterparty risk — the danger that a party you depend on fails to perform. A stablecoin is only as robust as its underlying assets and the institutions holding them. Given Tether's size, one small bank's failure appears manageable. However, the episode highlights that stablecoin holders lack the deposit insurance that ordinary bank accounts provide, and reserve reports only show what an issuer holds, not where it is held or how quickly it can be accessed.

The next developments to watch include whether EQIBank enters formal liquidation and whether the California court returns any seized funds. Any disclosure from Tether of the exact sum at risk or a note in its next reserves report would also be helpful. A court victory for EQIBank would likely resolve the matter quietly. Formal liquidation would make Tether a creditor in line, but at this scale it would not threaten USDT's backing.