Tether Resumes USDT Loans, Insists It Maintains Excess Reserves

Stablecoin issuer Tether has resumed providing new loans denominated in USDT to clients, a move that comes nearly a year after the company had announced its intention to discontinue offering collateralized loans in 2023.

The revelation comes from the company's latest quarterly financial update, which indicates an increase in USDT-denominated loans. As of June 30, the report showed assets that included $5.5 billion in loans, up from $5.3 billion in the previous quarter.

The Wall Street Journal earlier today cited Tether spokesperson Alex Welch, who confirmed that the company has indeed extended new loans during the second quarter of 2023.

"We received a few short-term loan requests from clients with whom we have cultivated longstanding relationships, and we made the decision to accommodate these requests." Welch explained.

According to Welch, there were two primary reasons for the loans: the first was to prevent any depletion of customer liquidity, ensuring that clients could continue their operations without facing liquidity constraints; the second reason was to assist clients so they wouldn't have to sell their collateral at potentially unfavorable prices.

However, Tether's move to resume lending the USDT stablecoin contrasts with an announcement from the company late last year.

In December 2022, the company had declared its intention to reduce secured loans in USDT reserves to zero throughout 2023. The statement was made in the wake of the collapse of crypto crypto exchange FTX, and was aimed at restoring trust in the market.

Tether hits back at "tabloid-style reporting"

Along with Welch’s comments to the WSJ, Tether responded to the report regarding its decision to resume stablecoin lending activities in a separate blog post, defending its actions.

“The banking industry is facing significant challenges and has proven incapable of keeping up with evolving global financial markets, something the Wall Street Journal has disregarded countless times in pursuit of tarnishing the reputation of true innovators like Tether,” said the company.

According to Tether, which operates out of the British Virgin Islands, traditional financial institutions are failing to meet the requirements of their customers in a manner that can be detrimental to a thriving economy and “few have taken the time to examine this further.”

“Rather they are spending time scrutinizing Tether, who, in the interest of its customers, has accrued more than $3.3 billion in excess reserves to effectively reduce secure loan exposure as net result,” asserted the company.

Tether also highlighted that it has accumulated more than $3.3 billion in excess reserves, saying that “anyone with a minimum understanding of financial markets would see that [the company] is in all effects offsetting the secured loans and retaining such profits within the company balance sheet.”

The company added that it is “still committed to removing the secured loans from its reserves.”

Additionally, Tether projected a substantial yearly profit of $4 billion, stating that this high level of profitability and its substantial reserves are effectively mitigating the impact of secured loans, allowing it to maintain a healthy balance sheet.

“This demonstrates the need for a more nuanced understanding of how stablecoins function and dispels any misconceptions regarding Tether's security,” said Tether. “Or one might wonder if this is merely an attempt to manipulate tabloid-style reporting to appease their ‘friends’ entrenched in the old guard.”

This isn’t the first time that the WSJ has cast doubt on Tether's ability to meet redemption requests during times of financial stress. In December 2022, the paper published a report expressing concerns about both Tether's products and the claims that the loans were not fully supported by collateral.

Tether didn’t immediately respond to Decrypt’s request for additional comments on the matter.

In a separate development today, Tether has announced it is “expanding its reach beyond fintech” with a strategic investment in Northern Data Group, a Germany-based provider for data center and cloud environment services. Through this partnership, the two companies will collaborate on artificial intelligence (AI), communication and data storage initiatives.