Erik Weijers, 15 days ago

Stablecoin issuer Tether has bought BTC for its reserves

Stablecoin issuer Tether (USDT) in its recent reserves report reveals that the company holds approximately 52 thousand BTC, worth a respectable $1.5 billion. This is only a fraction of its total assets but signals an interesting potential trend of institutions allocating a piece of their capital to Bitcoin. 

But wait, Tether is a crypto company, isn't it sort of expected that they allocate a bit to Bitcoin? Well, they exist since 2014 and have not previously mentioned any BTC as part of their reserves. Even though it's possible that it used to be lumped under their category of 'other investments'. 

Tether has also announced that it will from now on allocate 15% of their profits to Bitcoin. While this might cause some people to shift in their seats a bit uncomfortably - the last time a stablecoin company did this (Terra) they were about to crash the markets with them - remember that this BTC allocation concerns realized profits. So, the stability of USDT doesn't depend on the volatile BTC price. 

USDT versus USDC

Tether is doing nicely. The company is projected to record a profit of $700 million in the first quarter of this year. The cause of the profits? The very basic business model of a centralized stablecoin like USDT are the yields on the collateral they hold for every stablecoins they issue. US treasuries pay up to 5% which means easy money for a stablecoin issuer. Almost two-thirds of Tether's collateral consists of treasuries. 

It's remarkable how Tether's total market capitalization has grown to a record high over 80 billion dollars, far outpacing its main competitor Circle (USDC, 30 billion dollars). The latter is unlucky that its headquarters are in the US, the country which keeps harassing its crypto companies.  

Ironically, Tether is now - again - by far the most popular stablecoin, while its headquarters are offshore, and it is therefore less tightly regulated and audited. An extra blow for Circle came when billions of its reserves were under threat of being lost at bankrupt Silicon Valley Bank. Fortunately, USDC recovered. 

Tether can play by its own rules while its competitor Circle has to wait for clear stablecoin regulation from the US. But if and when that regulation comes, USDC will likely get a stamp of approval and USDT won't.

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