21Nov 2023

Tether Transparency & Stability Update

by Matthew Harcourt

Throughout the history of the crypto market the subject of Tether and their key product, USDT, has been front of mind for institutional and retail investors alike. At Apollo Crypto we receive many enquiries from investors and other market participants about our thoughts, opinions and risk assessment of Tether and USDT. We will aim to provide a holistic perspective on the current Tether position in this blog post.

Some of the scepticism and criticism of Tether over the years has merit, as it has been confirmed that Tether engaged in questionable activity. A lot of these activities were carried out due to the problems Tether incurred attempting to find and keep banking partners. In this blog post we will explore the current state of USDT & Tether to determine whether there is cause for concern going forward.


About Tether & Brief History.

Tether (USDT) is the largest stablecoin by market capitalization, currently sitting close to US$88 billion. Crypto traders use stablecoins like Tether to make transfers between different cryptocurrencies or to move their investments into or out of fiat currencies. Each USDT represents 1 USD sitting in a bank account controlled by the Tether parent company, institutions can directly redeem USDT for USD and vice versa for a fee. Using Tether for liquidity began when it was added to the Bitfinex exchange in January 2015.

Tether was fined US$41 million in October 2021 by the Commodity Futures Trading Commission (CFTC) telling customers and the broader cryptocurrency market that it had $1 in reserve to back every token when in actual fact, it was misleading and not true at that point in time. Naturally, it is challenging to trust an organisation who has engaged in this conduct, in this blog we will objectively analyse Tether’s current position to assess their probability of solvency and stability going forward.   


USDT Backing

Tether releases auditor assurance reports and outlines all current assets and liabilities on their website. Below we can see the current standings that they have disclosed as of 20 November 2023.


As we can see, Tether has a substantial cushion of overcollateralisation (3.65%), making USDT secure as a stablecoin. But the stability is only as good as the quality of the collateral, below is a breakdown of collateral as of 20 November 2023.


While there are some price sensitive assets making up the collateral, it is fair to say that the price volatility of precious metals is unlikely to be a cause for concern for USDT. Tether has used excess profits to invest into Bitcoin, which does not impact the collateralisation of USDT. It is important to note that Tether no longer holds significant unsecured debt in the form of corporate bonds, a lot of uncertainty around USDT in previous years revolved around the Corporate Loan book that Tether used to have collateralising USDT. However, in this higher interest rate environment Tether can allocate to safer investments such as U.S. Treasury Bonds and still generate eye watering revenue. 


Tether Company Profitability

At a conservative yield of 4%, the U.S. Treasury Bonds held by Tether alone are able to generate US$2.78 billion in revenue per year. Tether is likely one of the most profitable companies in the world, with very little employee and overhead costs. Tether is also one of the biggest money market investors in the world, the largest money market mutual fund is Vanguard Federal Money Market Fund (Nasdaq:VMFXX), with assets exceeding US$120 billion.

Tether Holdings Ltd., said the company’s “own profit” was $850 million in the second quarter of 2023. With the overarching management company recording these sorts of profits in a single quarter, it is reasonable to assume that USDT is not going to face issues from a profitability standpoint.


USDT Market Capitalisation & Dominance


In recent time we have seen the USDT market capitalisation begin increasing again, some drivers of this increase are:

  • Users moving away from BUSD due to the stablecoin being shut down by regulation;
    Users moving away from USDC after the depeg event causes by Silicon Valley Bank’s collapse in March 2023; and
  • More fiat coming on-chain due to renewed confidence in the market.

According to USDT currently has 69.2% dominance over the stablecoins market, making it an important and systemic player in the crypto asset market. 


Recent Tether News 

Two key news articles have come out recently that are important to the Tether company:

  1. U.S. District Court for the Southern District of New York Chief Judge Laura Taylor dismissed a class action lawsuit against Tether and Bitfinex filed by Matthew Anderson and Shawn Dolifka — citing a lack of “plausible allegations of injury”.
  2. The company plans to spend about half a billion dollars over the next six months on Bitcoin mining, its incoming chief executive Paolo Ardoino said in an interview, both through constructing its own mining facilities and by taking stakes in other companies.
  3. Tether Freezes $225M Linked to Human Trafficking Syndicate Amid DOJ Investigation, demonstrating a commitment to acting in the best interest of the market.  


Final Thoughts

As mentioned at the beginning of this blog, it is always difficult to trust those who have done wrong in the past and Tether is no exception to this. While we believe that the stablecoin market will continue to grow, evolve and be competitive, the truth is that Tether and USDT currently dominate the market. Through analysing the Tether Holdings Company’s profitability and the transparent documentation we are confident that a lot of the current FUD surrounding Tether is misplaced.

Matthew Harcourt

Matthew has been actively investing in the crypto markets for 7 years and holds a Bachelor of Business from Monash University, majoring in Accounting. Matthew focuses on portfolio construction through thorough research and analysis of crypto protocols as well as execution of investments and strategies. Matthew’s passion lies in supporting portfolio companies through advisory on tokenomics and strategy, adding significant value to Apollo’s early-stage investments.