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Stablecoin coin issuer Tether has announced it is resuming lending USDT to clients. The announcement comes less than a year after the company announced it would stop issuing loans.
Tether has reported an increase in USDT-denominated loans in its latest quarterly financial update.
Tether Resumes Collateralized Loans
The revelation about the resumption of USDT loans to clients came from the company’s latest quarterly financial update. The report showed that as of the 30th of June, assets included around $5.5 billion in loans. This figure is up from the $5.3 billion issued in the previous quarter. Tether spokesperson Alex Welch confirmed the developments, stating that the company had indeed begun extending clients’ new loans during the second quarter of 2023. Welch stated,
“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.”
Welch stated that there were two primary reasons Tether resumed extending USDT loans. The first reason was to prevent any depletion and disruption of customer liquidity. This would ensure the company’s clients could continue their regular operations without any liquidity issues. The second reason was to assist clients so they would not have to sell their collateral at any unfavorable places. However, the company has released very little information about who is borrowing the tokens or what the borrowers are putting up as collateral.
Tether’s Previous Announcement
Tether’s announcement about the resumption of loans starkly contrasts with the announcement it made last year. The company had stated that it would reduce secured loans in its reserves to zero.
“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.”
The company made the statement in the aftermath of the unprecedented collapse of FTX with the intention of restoring trust in the market. The increase in loans has given rise to concerns about the company’s ability to withstand excess redemptions, should they occur. It also comes at a time when Tether has established its dominance in the stablecoin space after USDC experienced a steady decline in market share.
Tether Criticizes Tabloid Style Reporting
Tether defended its actions and decision to resume lending and criticized the reporting surrounding it in a separate blog post. The company stated that the banking industry is facing considerable challenges and is struggling to keep up with evolving global financial markets.
“The banking industry is facing significant challenges and has proven incapable of keeping up with evolving global financial markets, something the Wall Street Journal has disregarded countless times in pursuit of tarnishing the reputation of true innovators like Tether.”
The company stated that traditional financial institutions fail to meet customer requirements. This can be extremely detrimental to a thriving economy, and few have tried to examine the matter in detail. It further added,
“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 a net result.”
Excess Reserves And Healthy Profits Projected
Tether also highlighted that it had excess reserves of over $3.3 billion, adding that anyone with an understanding of how the markets work would be able to see how the company is offsetting the secured loans and retaining profits within its balance sheets. However, it added that it is still committed to removing all the secured loans from its reserves.
Tether also projected a healthy yearly profit of $4 billion, adding that such a high profit and excess reserves are mitigating the impact of secured loans and allowing the company to maintain a healthy balance sheet. Separately, Tether also announced that it is expanding beyond fintech after making a strategic investment in a German-based provider of data center and cloud environment services, Northern Data Group.
“This demonstrates the need for a more nuanced understanding of how stablecoins function and dispels any misconceptions regarding Tether’s security. Or one might wonder if this is merely an attempt to manipulate tabloid-style reporting to appease their ‘friends’ entrenched in the old guard.”
This is not the first time the WSJ has cast doubt on Tether’s ability to meet redemption requests during times of financial upheaval. In 2022, the paper published a report expressing significant concerns about Tether and its products.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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