LONDON - Tether, the world's largest stablecoin, said on Thursday it has boosted its holdings of U.S. government debt while cutting exposure to riskier assets, the first look at its reserves since the token was rocked by the crypto sector's recent sell-off.

Stablecoins, a variety of cryptocurrencies designed to keep a steady value, are in sharp focus after crypto markets were rocked last week by the demise of the TerraUSD token.

Usually underpinned by reserves of assets such as dollars, gold and government debt, stablecoins are widely used in cryptocurrency trading - with Tether the predominant medium for moving funds between crypto or into regular cash.

Yet Tether broke its 1:1 peg with the dollar as cryptocurrencies fell, dropping to as low as 95 cents, according to CoinMarketCap, before recovering, shaking faith in a key cog in the crypto economy.

The token, run by a British Virgin Islands company, is designed to hold a value of $1. Tether promises it has sufficient reserves to allow all holders of the over-$70 billion worth of Tether in circulation to exchange their tokens for dollars.

Tether said it boosted its holdings of Treasuries by over 13% to $39.2 billion and cut its exposure to riskier commercial paper - short term debt issued by companies - by around 17% to $20.1 billion in the first quarter.

Tether said its reserves totalled $82.4 billion as of March 31, with some $82.3 billion in liabilities. It has reduced its commercial paper holdings by an extra 20% since the Q1 report was written, Chief Technology Officer Paolo Ardoino said.

Financial regulators worldwide have warned that stablecoins could pose a risk to wider financial stability, with Britain among major economies looking to regulate the sector.

(Reporting by Elizabeth Howcroft in London and Hannah Lang in Washington; editing by Tom Wilson and David Gregorio)