Tether Has $1.7 Billion In Excess Reserves to Back USDT

Paulo Ardoino, the Chief Technology Officer (CTO) at Tether, made striking new revelations on the financial status of his company’s USDT stablecoin at the Paris Blockchain Week 2023.

Speaking to crypto news outlet Cointelegraph, the executive said Tether is expected to make $700 million in profit this quarter, which matches the profit made by the company in the fourth quarter of 2022. 

Tether Expects $700 Million Profit In Q1 2023

While not confirming the exact figures, Ardoino said Tether has an additional $950 million in USDT reserves as of December 31, 2022. Meaning the firm’s equity is expected to grow to $1.5 billion or $1.7 billion on top of the reserves backing its dollar-backed cryptocurrency. 

Apart from USDT, the Tether also issues Tether Mexican pesos (MXNT), Tether euros (EURT), Tether yuan (CNHT), and Tether Gold (XAUT). 

Referring to the ongoing banking crisis, the CTO noted that USDT was fast becoming one of the “safest assets to hold in the world” because of the company’s varied approach to the fractional reserve system that is used by traditional banks.

This month saw three U.S. banks – Silicon Valley Bank, Signature Bank, and Silvergate Bank – collapse as a result of the Federal Reserve hiking borrowing interest rates on the dollar. 

Under the fractional reserve model, banks can hold portions of their deposits to make them available for withdrawals. The banks invest more than half of their customer funds in long-term, high-yielding securities, like U.S Treasury bonds and mortgage-backed securities (MBS), to generate returns via interest.

While this is a popular business model in the industry, it did not come of help when the Fed started to raise interest rates to combat rising inflation in the U.S. economy. 

With borrowing rates on the dollar at a 40-year high, returns on the banks’ investments diminished and they had to look outside to raise capital to facilitate customer withdrawals.

When that move failed to materialize, they were forced to sell the securities before maturity, causing huge losses which created liquidity holes in their balance sheet. This resulted in customers panicking and causing a run on the bank to withdraw their deposits, leading to SVB, Signature Bank, and Silivergate Bank declaring insolvency. 

Tether’s rivals Circle, which issues the USD Coin (USDC), was a victim of the second-largest bank failure since the 2008 financial crisis. The company held $3.3 billion in cash backing its $40 billion USDC reserves in Silicon Valley Bank. The bank’s collapse led to USDC holders doubting the token’s future and rushing to redeem their holdings, resulting in the stablecoin losing its dollar peg and dropping as low as $0.87. 

However, the token quickly regained its dollar value after the U.S. government announced it will guarantee the banks’ depositors, and Circle said it will transfer all cash reserves from SVB and transfer them to BNY Mellon. 

USDT Continues to Dominmate Stablecoin Market As Rivals Failed to Anticipate the Banking Crisis

Meanwhile, Tether has been aggressively cutting commercial paper from its $78 billion USDT reserves. Last October, the company revealed it will completely replace $30 billion worth of commercial paper in its reserves with U.S Treasury bills by the end of 2022, which would help increase customers’ trust in the stablecoin. 

Last month, after conducting an audit of Tether’s USDT reserves, accounting firm BDO confirmed that the company managed to reduce its secured loans by $300 million and increased the amount of Treasury bills in its reserve by 58%, staying true to its word. 

Troubles faced by rivals USDC and Binance USD (BUSD) have seen investors flocking to store their funds in USDT. In the past week, Tether minted 4 billion USDT on the TRON blockchain to keep in line with growing demand.

Ardoino also said he is a big fan of Bitcoin, the original cryptocurrency. The CTO said Bitcoin is Tether’s hedge as the company does not trust “guys that took so much risk on customer deposits”. 

While Tether continued its dominance in the stablecoin market with USDT, Circle’s USDC, the second-largest dollar-backed stablecoin by trading volume, seems to be losing its market share. The cryptocurrency has lost 18% of its market cap since February.