Crypto Giant Tether Said it Would Downsize Stablecoin Loans but Does the Opposite

Tether has taken a U-turn on its earlier decision to downsize its stablecoin loans. The company has resumed issuing USDT loans barely one year after it said it would stop its lending program.

The Tether’s latest quarterly financial report shows that Tether has in fact increased its issuing of USDT-denominated loans from $5.3 billion a quarter earlier  to $5.5 billion as of June 30. A Wall Street Journal report reveals that a spokeswoman for the company confirmed the figures on the financial report.

“During the second quarter of 2023, we received a few short-term loan requests from clients with whom we have cultivated long standing relationships, and we made the decision to accommodate these requests,” Tether Holdings Spokeswoman Alex Welch told The Wall Street Journal.

Tether had in a blog post late last year stated it would reduce its loans to zero in 2023. This was in response to an attack on the company, spreading fears among its loan services users following FTX collapse.

“In response to the most recent attack on Tether, the company has reiterated that the secured loans held in its reserves are overcollateralized and covered by extremely liquid assets,” Tether stated at the time.

“Understandably, after the events that have unfolded this year, the company recognizes that it is mission critical to restore faith in the market. Today, in addition to dismissing the recent cycle of Tether FUD that’s hitting the rumor mill, Tether is announcing starting from now, throughout 2023, it will reduce secured loans in Tether’s reserves to zero,” it further stated in the blog post.

Tether Justifies Loan Issuance

While promising a second time that the loans will be stopped completely by 2024, Welch said the loans became necessary either to prevent any depletion of customer liquidity or to assist clients so they did not have to sell their collateral at potentially unfavorable prices. 

Justifying the issuance of the loans, Tether directly responded to the Wall Street Journal’s report saying:

“Traditional financial institutions are not addressing the needs of their customers in a way that is 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.”

However, uncertainties still surround the company’s secured loans, since its balance sheets don’t show the assets it uses to issue loans that are  “over-collateralized by liquid assets”  as it claims.  

Tether’s Expanding Scope

Apart from the collateralized loans issue, Tether has greatly widened its reach this year. The company has ventured into many investments, including mining of Bitcoin using green energy. Tether announced plans to establish a bitcoin mining farm in Uruguay that will use green energy in May.

More recently, the company acquired a 20% stake in German Bitcoin miner, Northern Data. This is a $420 million investment in the Bitcoin mining company in which it bought 10,000 H100 GPUs from Nvidia.

Northern Data plans to rent the chips to AI startups to make profits for Tether, further increasing its share of the Bitcoin circulating supply. An earlier report revealed that the company is one of the biggest Bitcoin holders in the world.

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