Tether Pledges to Plow 15% of Profits into Bitcoin

Tether is to start regular purchases of Bitcoin to bolster its excess reserves, the stablecoin issuer said in an announcement on Wednesday.

The company will allocate up to 15% of its net realized operating profits for buying up the world’s largest cryptocurrency, starting this month.

“Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential,” said Paolo Ardoino, Tether’s CTO. “Its limited supply, decentralized nature, and widespread adoption have positioned Bitcoin as a favored choice among institutional and retail investors alike.”

Tether mints USDT—the third-largest cryptocurrency after Bitcoin and Ethereum and the industry’s biggest stablecoin. Stablecoins are cryptocurrencies with prices pegged to “stable” assets, like the U.S. dollar.

The company already holds around $1.5 billion worth of Bitcoin in its reserves, as per an assurance report from March this year.

The amount put towards the new investment strategy will be based on realized profits, which does not include unrealized gains from price increases within the portfolio.

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Ardoino said on Twitter that the company has accrued $2.5bn in excess reserves on top of the 100% reserves that back issued tokens. This is a result of interest rates on U.S. Treasury bills and other investments such as gold.

“While banks can do fractional reserve, we believe that's not a viable strategy for a stablecoin, so it's crucial that Tether keeps an additional cushion to further protect its user base,” he said.

Soaring profits, but critics are "dubious"

In its most recent financial update, Tether boasted of “tremendous success” as it said net profits had hit $1.48 billion in the first quarter, while reserves are at an all-time high.

But the business was recently hit by accusations that its reserve claims are “dubious,” with former former Securities and Exchange Commission enforcement attorney John Reed Stark arguing that the firm’s regular unaudited attestations are “meaningless.”

Tether Boasts Record Profits—But Reserve Claims Remain 'Dubious', Says Former SEC Attorney

A lively discussion between a former Securities and Exchange Commission enforcement attorney John Reed and Tether’s CTO, Paolo Ardoino, ensued after the attorney tweeted a fierce criticism of the company, beginning with: “IMHO, Tether is a Mammoth House of Cards.” An attorney with nearly two decades at the SEC, Reed is adamant in his distrust of Tether, citing what he calls the company’s opaque financial statements and a lack of regulatory framework from the government. Reed’s lengthy first twee...

Tether’s critics have voiced concerns over whether it provides sufficient disclosure regarding the U.S. dollar reserves which supposedly back USDT.

The Wall Street Journal reported in March that companies backing USDT used fake documents and shell companies, an allegation Tether said was “wholly inaccurate and misleading.”