Tether’s $5.2bn profit is turning it into an investment fund

Tether is sitting on a mountain of extra money.

The stablecoin issuer said Wednesday that its surplus grew by $5.2 billion in the first half of the year.

Tether is now looking more like an investment fund thanks to a rapidly growing investment arm and outsized holdings of US Treasury bonds, money market funds, cash and other assets.

For years crypto critics assailed Tether for not being transparent in how it backed up its dollar-based stablecoin.

By amassing relatively low risk securities and reporting the results in quarterly “attestations,” Tether has rebutted its sceptics by demonstrating it has ample capacity to support its $114 billion in outstanding USDT.

“We need to have the vast majority of holdings in something that we can redeem for dollars right at any point in time,” Paolo Ardoino, Tether’s CEO, recently told DL News.

Tether is navigating a number of crosscurrents in the stablecoin market.

The European Union now requires issuers to comply with strict new regulations on how they safeguard and support their stablecoins, which saw several exchanges delist the company this summer.

And rival stablecoin issuers Circle and PayPal pursue strategic growth plans of their own to challenge Tether’s dominance in the market.

Meanwhile, law enforcement authorities worldwide are increasingly finding USDT plays an outsized role in money laundering.

In January, the United Nations Office on Drugs and Crime reported that more than $17 billion in USDT was connected to underground crypto exchanges, illegal trades, and criminal activities during a one-year period ending last September.

In interviews this year with DL News, Ardoino has said Tether is working closely with law enforcement agencies such as the US Department of Justice to make cases against money launderers.

The CEO also said he is eager to get one of the big four global accounting firms — Deloitte, EY, KPMG, and PwC — to audit Tether’s books.

But due to crypto’s notoriety, none have signed on.

BDO

In the meantime, Tether is relying on quarterly reports from BDO, an Italian accounting firm, to detail its holdings.

As of June 30, Tether held $97 billion in US Treasuries, an 8% jump from the end of the first quarter.

The new report comes after Tether reported a blockbuster $4.5 billion profit in the first quarter of the year, a 61% quarter-over-quarter jump.

That growth came from yield on its Treasuries, as well as a run up in the price of Bitcoin and gold.

Bitcoin makes up 4% of the $118 billion stockpile that backs Tether’s myriad stablecoins, according to the report.

Tether has committed to “regularly” spending up to 15% of its operating profits on Bitcoin in order to “strengthen and diversify the [stablecoin] reserves. "

Growth in the second quarter slowed, as the value of Tether’s Bitcoin holdings fell 12%, to $4.7 billion.

Meanwhile, the value of the “secured loans” that back Tether’s stablecoins jumped 38%, to almost $6.6 billion.

As of June, the loans made up 5.5% of Tether’s stablecoin backing.

The company restarted its stablecoin lending business in September.

It had previously halted them in December 2022 to quell what it referred to as “unjustified fears created by fudders and speculative attempts of a few to take Tether down.”

Tether doesn’t disclose the borrowers or the assets they provide as collateral.

Critics, afraid that defaults could leave Tether’s stablecoins under-collateralised, have said the lending poses a risk to USDT and, in turn, the broader crypto ecosystem, The Wall Street Journal reported.

Tether issued more than $112 billion in USDT against $118 billion in reserves as of June 30, the report said, giving the stablecoin a roughly $5 billion cushion.

Tether issued $8 billion in USDT in the second quarter, it said.

As for its profits, Tether said some were “reinvested in strategic projects to support the ecosystem.”

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.