Tether, the leading stablecoin issuer in the cryptocurrency market, has experienced a notable surge in stablecoin lending activities in 2023, despite announcing its intention to phase out such loans by the end of 2022. In its latest quarterly report, Tether disclosed that its assets included approximately $5.5 billion in loans as of 30 June of this year, marking an increase from the $5.3 billion reported in the preceding quarter.
Reasons Behind the Increased Lending
A Tether spokesperson clarified to The Wall Street Journal (WSJ) that the recent uptick in stablecoin lending was primarily driven by short-term loan requests from longstanding partners. These partners, according to Tether, have built enduring relationships with the company over the years. The spokesperson also reiterated the company&'s commitment to reducing these loans to zero by 2024.
Stablecoin loans have long been a popular financial product offered by Tether. They enable customers to borrow USDT, Tether&'s stablecoin, in exchange for collateral. However, this lending practice has been enveloped in controversy due to concerns about transparency regarding the collateral and the borrowers.
Stability of Tether’s Loans Called Into Question
The alarm was first sounded in December 2022 when a WSJ report raised questions about the stability of these loans, suggesting that they were not adequately collateralized. The report also raised doubts about Tether&'s ability to meet redemption requirements in times of financial stress.
In response to these concerns, Tether took steps to address the controversies in 2022 before announcing its plan to phase out secured loans in 2023. At that time, Tether vigorously defended its lending practices, dismissing the concerns as "FUD" (Fear, Uncertainty, Doubt) and asserting that the loans were, in fact, overcollateralized.
Tether’s Surplus Reserves
The recent resurgence of secured loans for Tether coincides with the firm&'s growing market dominance and profitability. As of September, Tether reported a substantial $3.3 billion in surplus reserves, a remarkable increase from the meager $250 million reported in 2022.
Nevertheless, Tether did release a statement in response to the WSJ report, characterizing the concerns raised in the publication as unwarranted. The stablecoin issuer emphasized its current financial strength, boasting $3.3 billion in excess equity. It noted that this surplus and its projected yearly profit of $4 billion effectively offset the impact of the secured loans, with Tether still firmly committed to removing such loans from its reserves.
Tether&'s decision to eliminate secured loans aligns with broader industry trends and regulatory scrutiny surrounding stablecoins. Regulators in various countries have expressed concerns about the potential systemic risks posed by stablecoins if they are not adequately backed by assets. This increased scrutiny has prompted many stablecoin issuers, including Tether, to reevaluate and modify their lending practices.
As Tether works towards its goal of completely phasing out stablecoin loans by 2024, industry observers will be closely monitoring the company&'s actions and adherence to its commitment to transparency and risk management.
Tether’s $1 Billion Authorization Sparks Liquidity Boost for TRON Network
In related news, blockchain trackers recently caught wind of a significant financial maneuver within the Tether ecosystem, as a staggering $1 billion in USDT (Tether&'s stablecoin) was authorized but not yet issued. This notable development, brought to light by the blockchain monitoring platform WhaleAlert, has raised questions about Tether&'s intentions with this substantial sum.
Paolo Ardoino, Chief Technology Officer of Tether, swiftly responded to the revelation, shedding light on the purpose of this sizable authorization. Ardoino clarified that the authorized USDT tokens were earmarked to bolster liquidity within the TRON network, a popular blockchain platform.
It is essential to distinguish that this authorization does not equate to immediate issuance. Instead, the allocated $1 billion in USDT serves as a reserve to facilitate forthcoming issuance requests and chain swaps originating from the TRON network.
Tether&'s official FAQ page explains the concept of "authorized but not issued" USDT, underscoring its role in securing the token creation and issuance process. By creating these authorized reserves, Tether minimizes the frequency with which its signatories need to access their authorization private keys, thereby reducing potential security vulnerabilities.
The authorization of USDT in the Tether Treasury essentially ensures that Tether can issue USDT promptly once it receives corresponding customer funds, thus maintaining a 100% reserve backing.
TRON’s Impressive Growth This Year
This move comes as no surprise, considering the remarkable growth of USDT tokens issued on the TRON blockchain throughout 2023. The TRON network has accumulated an impressive $42.8 billion worth of USDT in circulation, overtaking the Ethereum blockchain, which has approximately $39 billion worth of USDT circulating on-chain.
Tether&'s CTO had previously elucidated similar instances of significant USDT authorizations that caught the attention of blockchain trackers. In June 2023, Tether authorized $1 billion in USDT to facilitate Ethereum chain swaps, demonstrating the company&'s strategic approach to providing liquidity across multiple blockchain platforms.
Tether Continues Its Market Dominance in 2023
In terms of market capitalization, Tether has witnessed substantial growth in 2023, surpassing a staggering $83 billion. Since the beginning of the year, Tether has minted approximately $16 billion in USDT, solidifying its position as the leading United States dollar-pegged stablecoin by market capitalization.
In stark contrast, Circle&'s USD Coin (USDC) stablecoin has experienced a market capitalization decline. At the outset of 2023, USDC boasted a market cap of $50 billion, which has since dwindled to $26 billion at press time.
The decline in USDC&'s market cap has been attributed to the collapse of Silicon Valley Bank (SVB), a significant financial institution. At the time of SVB&'s collapse in March of this year, Circle had approximately $3.3 billion tied up in the institution, which likely contributed to the erosion of USDC&'s market capitalization.
The Tether ecosystem&'s recent authorization of $1 billion in USDT signifies the company&'s commitment to facilitating liquidity on the TRON network and showcases its proactive approach to supporting various blockchain platforms. As the cryptocurrency landscape continues to evolve, Tether&'s strategic moves in managing stablecoin liquidity are sure to remain under the watchful eye of the crypto community and industry observers.
Data from the cryptocurrency price tracking website CoinStats indicated that USDT was valued at slightly more than $1 at press time. This was after the largest stablecoin by market cap recorded a 24-hour gain of 0.4%.
Price chart for USDT (Source: CoinStats)
Furthermore, the stablecoin’s daily trading volume was estimated to be around $28 billion. Meanwhile, its market cap of $84 billion meant that Tether was the 3rd largest cryptocurrency overall in terms of market cap.
The market leader Bitcoin (BTC) had weakened by 2.22% against USDT over the past day of trading. Subsequently, 1 USDT token was estimated to be worth 0.0000379 BTC at press time.