Tether Stablecoin Loans Surge in 2023 Despite Prior Downsizing Announcement in 2022

Tether, a leading stablecoin issuer within the cryptocurrency market, has experienced a notable uptick in its stablecoin lending activity in 2023. This development comes as a surprise, given that the company had previously declared its intention to completely phase out such lending operations by December 2022.

In their latest quarterly report, Tether disclosed that their assets included $5.5 billion in loans as of June 30, marking an increase from the previous quarter’s figure of $5.3 billion. A spokesperson from Tether shared with The Wall Street Journal (WSJ) that this recent surge in stablecoin lending can be attributed to a few short-term loan requests from clients who have maintained long-standing relationships with the company. The spokesperson also emphasized Tether’s commitment to reducing these loans to zero by 2024.

Tether’s stablecoin loans had gained popularity as a lending product, enabling customers to borrow USDT in exchange for providing collateral. However, these secured loans had consistently been surrounded by controversy, primarily due to concerns about the transparency of collateral and the identity of borrowers.

A WSJ report in December 2022 raised questions about these products, suggesting that the loans were not fully backed by collateral. The report also cast doubts on Tether’s ability to meet redemption demands during times of financial stress.

In response to the controversies, Tether had taken steps in 2022 to address the concerns before announcing its plan to phase out secured loans in 2023. At that time, the stablecoin issuer dismissed concerns about secured loans as “FUD” (Fear, Uncertainty, and Doubt) and asserted that these loans were actually overcollateralized.

The recent resurgence in secured loans for Tether coincides with the company’s growing dominance and profitability in the market. Tether reported a surplus reserve of $3.3 billion in September, a significant increase from the $250 million reported in 2022.

Nonetheless, Tether did issue a response to the WSJ article, defending its position and stating that the concerns raised in the publication regarding stablecoin loans are unwarranted. Tether emphasized that as a company with $3.3 billion in excess equity and on track to achieve a yearly profit of $4 billion, it is effectively offsetting the impact of the secured loans and retaining such profits within the company’s balance sheet. The commitment to eventually eliminate secured loans from its reserves remains intact, according to Tether.

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