Tether Restores USDT Collateralized Lending, Insisting on Excess Reserves

Stablecoin issuer is rescinding its decision to terminate the provision of collateralized loans. The firm behind the leading stablecoin USDT by market capitalization, as per Coin Gecko, is resuming USDT lending to clients.

The announcement featured in the recent quarterly financial update indicates that Tether is resuming providing USDT-denominated loans to clients. The move walks back from the announcement in 2022 that it would discontinue USDT loans. 

Tether Resumes USDT-Denominated Loans to Clients

 The revelation of the sudden twist on Tether’s previous announcement is evident in the quarterly update confirming the increased USDT-denominated loans. The second quarter report shows Tether’s assets included $5.5 billion, up from the $5.3 billion realized in the first quarter of 2023.

Tether resumption of USDT loans was captured in a Thursday, September 21 publication by The Wall Street Journal. The publication cited Tether’s executive, Alex Welch, that the stablecoin issuer advanced new loans to its clients in the second quarter of 2023.

Welch added that Tether received requests for short-term financing from clients who had nurtured longstanding relationships. The executive explained the decision to accommodate requests. 

Welch observed that the loans were requested for two reasons, primarily preventing the depletion of customer liquidity. The loans would enable the clients to sustain their operations without bearing liquidity constraints. The second reason for extending the loans was to assist the clients in preventing the sale of collateral at unfavorable prices.

Tether Faults Banking Industry Challenges

Nonetheless, Tether’s decision to resume USDT stablecoin contrasts with the announcement in 2022. Six months ago, Tether declared the decision to lower the loans secured via USDT reserves to zero in 2023. Tether commented following the crypto exchange FTX collapse to restore market trust.

The revelation of Tether resuming stablecoin lending defended the action in a Thursday response amidst scrutiny from the Wall Street Journal. The company admitted that the banking industry faces significant challenges and cannot keep pace with the evolution witnessed in global financial markets. The company decried the Wall Street Journal for repeatedly aiming to tarnish the reputation of innovative companies such as Tether.

Tether lamented that traditional financial institutions struggle to satisfy the customers’ requirements. Such experiences gradually turn detrimental to the thriving economy, though few examine the challenge beyond reporting Tether’s activities.

Tether criticizes the Wall Street Journal for scrutinizing its lending activities initiated to serve the customers’ interests. The company revealed that it accrued over $3.3 billion in reserves to lower the secure loan exposure. 

Tether highlighted that it accumulated over $3.3B in excess reserves to offset the secured loans. By doing so, the company earned and retained the profits in its balance sheet. The company restated its commitment to eliminate the secured loans from the reserves. 

Tether added that it projects to realize an annual profit of $4 billion. It considered the high profitability levels and substantial reserves as effectively minimizing the impact of the secured loan. The process allows Tether to realize a healthy balance sheet. 

Tether Decries Misconceptions About Firm’s Security

Tether restated the need for reporting outlets to pursue an in-depth understanding of stablecoins’ function. The detailed understanding will help dispel misconceptions about the firm’s security. 

Tether questioned the biased reporting demonstrated by the WSJ and whether it portrays an attempt to distort tabloid-style reporting. Such may only arise when attempting to appease friends stuck in the old guard.

The criticism offered by WSJ to Tether regarding its lending mirrors a previous report that cast doubt regarding honoring redemption requests, particularly during financial stress. The December 2022 publication questioned Tether’s products. It claimed that Tether failed to support its loans via collateral fully. 

Meanwhile, Tether’s subsequent issue confirmed expanding the scope beyond fintech. It confirmed the strategic investment in German Norther Data to offer data centers and cloud services. The partnership will bolster artificial intelligence, data storage, and communication collaboration.