Tether increased its secured loans in Q2 despite commitment to reduce lending

Tether Holdings has increased the issuance of secured loans to its clients in Q2 despite intentions to reduce loan exposure, the WSJ reports.
Secured loans stood at $5.5 billion in 2Q, up from $5.3 billion the prior quarter, according to the latest filing.
Tether said its excess equity and profit can offset exposure to secured loans.

Tether Holdings has resumed the lending of its stablecoins in the form of secured loans to clients after announcing that it is set to wind down this practice less than a year ago. The information came to light in the firm’s recent quarterly financial update, according to a report by The Wall Street Journal.

The news stirred criticism from crypto influencers on X. Tether reiterated in a statement its commitment to reduce secure loan reserves to zero and accused The Wall Street Journal of tarnishing its reputation.

Also read: Mt Gox creditors hit by delay in repayment deadlines for $3.8 billion in Bitcoin

Tether’s secured loan book grows

Tether Holding’s latest quarterly financial update showed a $200 million growth in secured loans in the second quarter. In December 2022, Tether said it would reduce its secured loans to zero. Still, the latest filings show the size of the stablecoin issuer’s loan book has grown to $5.5 billion at the end of the second quarter compared with $5.3 billion in the first quarter.

The news raised doubts among the crypto community since Tether can’t be certain that its stablecoin loans will be paid back. The company lists these loans as “extremely liquid assets,” but it could be difficult for Tether to cover a large volume of redemptions in a crisis situation or sell these loans to buyers for the exact dollar value.

Tether acknowledged that its exposure to secured loans is not ideal, reassured the market of its commitment to reduce the exposure to zero.

Anyone with a minimum understanding of financial markets would see how a company having $3.3 billion in excess equity and on track to make a yearly profit of $4 billion is in all effects offsetting the secured loans and retaining such profits within the company balance sheet, Tether said.

Market participants are also concerned that Tether discloses little information about borrowers and the collateral accepted when issuing secured loans, which are denominated in Tether tokens (USDT). A loan default or Tether’s inability to redeem USDT for an equivalent US Dollar worries the crypto community as Tether and similar stablecoins are instrumental to demand for cryptocurrencies across centralized exchanges.

Stablecoins are used by new entrants and traders as an on-ramp to crypto. In its latest blog post, Tether slams its critics and attempts to alleviate concerns regarding Tether’s security and the company’s balance sheet.

Bitcoin, altcoins, stablecoins FAQs

What is Bitcoin?

Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.

What are altcoins?

Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.

What are stablecoins?

Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.

What is Bitcoin Dominance?

Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.

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