Why is Tether’s continued issuing of USDT loans a red flag?
originalTether Keeps Lending Tethers》, compiled by Odaily jk.
Original author: Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor at Dealbreaker, worked in the investment banking group at Goldman Sachs, served as an MA attorney at Wachtell, Lipton, Rosen Katz, and served as an associate judge on the U.S. Court of Appeals for the Third Circuit.
Tether starts issuing USDT loans
I know I say this a lot, but I just want to emphasize that Tether, the large stablecoin issuer,Doing an excellent business.It is an unregulated bank, pays no interest, rates are rising, and its depositor base is fairly stable. As of the end of June, Tether reported approximately $86.5 billion in assets, most of which were U.S. Treasuries backing approximately $83.2 billion in Tether. Increase compared to the previous quarter: Tether briefly suffered a run during last year’s crypto winter, but it was not too severe and has recovered well; crypto investors still want to keep their funds in Tether .
Anyway, if you are a Tether operator,You don’t need to worry about run risks. Tether invests primarily in short-term safe assets, which now pay very high interest rates. By simply investing your Tether funds in overnight loans backed by U.S. Treasuries at overnight funding rates, you can earn a yield of about 5.3%, or about $4.6 billion per year, completely risk-free and with virtually no fees. If someone comes with Tether and asks to exchange dollars, you can give them dollars directly; your investments are short-term and liquid. This is a wonderful business.
This means that if you are responsible for Tether and someone comes to you and proposes a smart investment that will bring higher returns, even with only a little risk, you should also plug your ears and yell NO and kick them out of your office.You can make billions of dollars in pure profit without taking any risk!No credit risk (buying Treasury bonds), no term risk (buying very short-term Treasury bonds), no liquidity risk (Treasuries can be easily sold if someone withdraws money), no risk at all, 5% interest.
This problem - how to use funds - may be an existential problem for real banks! We had discussed that in order to make enough money to run its business, Silicon Valley Bank needed to take investment risks, so it put money into long-term Treasury bonds thinking they were safe, but then there was a run on the bank and SVB collapsed. I feel sorry for them; they have to take risks to make money. But Tether doesn’t need to! Not at all, it would be a bit unreasonable for Tether to loan Apple Inc. $100.
However, Tether’s publicly disclosed balance sheet isn’t exactly the safest thing you can imagine. In the Wall Street Journal, Jonathan Weil reports:
Tether Holdings has restarted lending its own stablecoin to customers, after saying less than a year ago it would stop the practice.
In its latest quarterly financial update, the cryptocurrency issuing company said its assets included $5.5 billion in loans as of June 30, up from $5.3 billion in the previous quarter. A company spokesperson confirmed Tether made the new loan.
The company, registered in the British Virgin Islands, described the loans as secured and did not disclose details about the borrowers or the collateral accepted. Loans are issued and denominated in the company’s Tether token…
The resumption of lending differs from December 2022, when the company said it would reduce its secured loans to zero in 2023. “During the second quarter of 2023, we received a number of short-term loan requests from customers with whom we have developed long-term relationships, and we decided to honor those requests,” Tether Holdings spokesman Alex Welch said.
She said the loans will be eliminated in 2024. She said the companys goal is to prevent our clients from experiencing a significant reduction in liquidity or the need to sell their collateral at potentially unfavorable prices, resulting in losses.
Welch declined to explain why the companys clients might need to sell their collateral at unfavorable prices or whether Tether Holdings made new loans this year to help clients avoid defaults.
The point I made above is,Tether has no financial reason to need these loans. Anyone on Tether can become very wealthy and live an easy life by just putting all their money in treasury bonds.
A Tether spokesperson made the same point here: Tether is not lending because it wants to, or because it thinks it would be a good financial decision for Tether. Tether lends in order to support its borrowers. Someone over there - maybe a cryptocurrency exchange or trading firm, etc. - has some collateral (maybe a very volatile cryptocurrency) and wants to borrow USD (in the form of Tether), and Tether Holdings is where they can find it The cheapest and most accessible lenders. Someone in the crypto space needs funds to purchase (or continue to hold) their cryptocurrency, and Tether will provide the funds, secured by the cryptocurrency, not because it is a good deal for Tether, but because Tether is becoming the crypto ecosystem A good citizen of the system and supportive of its counterparties.
Tethers borrowers are large cryptocurrency investors who want to obtain financing for their cryptocurrency collateral, and if their liquidity is exhausted, they will need to sell their collateral at potentially unfavorable prices, resulting in losses. If large cryptocurrency companies receive margin calls and have to sell off their assets, that will drive the price of the cryptocurrency downward. Lending money to them is not only beneficial to them;Benefits for the entire crypto ecosystem: It protects against price drops caused by sell-offs.
We’ve discussed Tether’s lending activities before. A common form of crypto-skeptic conspiracy theory in recent years goes something like this: “Tether is a self-sufficient reserve bank for cryptocurrencies that dynamically prints Tethers to maintain the price of cryptocurrencies.At the margin, cryptocurrencies are not purchased by real people putting new dollars into the crypto system, but by crypto hedge funds using newly printed Tethers. (Editors note: From this perspective, large crypto hedge funds borrowed Tether and used these loans to purchase various cryptocurrencies, thus pushing up the market value of the entire market. But in the process, no new funds entered the market, thus It’s a self-promoting bubble.)
Does the Tether spokesperson’s remarks prove this to some extent?
