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Rising Tether Loans Add Risk To Stablecoin, Crypto World

The company behind the tether stablecoin has increasingly been lending its own coins to customers rather than selling them for hard currency upfront. The shift adds to risks that the company may not have enough liquid assets to pay redemptions in a crisis. From a report: Tether says it lends only to eligible customers and requires that borrowers post lots of “extremely liquid” collateral, which could be sold for dollars if borrowers default. These loans have appeared for several quarters in the financial reports that Tether shows on its website. In the most recent report, they reached $6.1 billion as of Sept. 30, or 9% of the company’s total assets. They were $4.1 billion, or 5% of total assets, at the end of 2021.

Tether calls them “secured loans” and discloses little about the borrowers or the collateral accepted. Alex Welch, a Tether spokeswoman, confirmed that all of the secured loans listed in the reports were issued and denominated in tether. The company said the loans were short-term and that tether holds the collateral. Tether, which is incorporated in the British Virgin Islands, doesn’t publish audited financial statements or a complete balance sheet, leaving outsiders with an incomplete picture of the company’s financial health. “Tether’s disclosures are limited to the information contained in the mentioned reports,” Ms. Welch said. The rise in Tether’s lending represents a broad risk to the crypto world. Stablecoins such as tether are anchors in the system. They are vital for trading many cryptocurrencies and are widely held by traders. The premise of tether — and other stablecoins — is that the issuer always will redeem one coin for $1. Issuers take pains to demonstrate they have ample funds available to do so. The company’s reports show only US dollar amounts for the loans and don’t say the loans were made in tether tokens. The reports also say the loans were “fully collateralized by liquid assets.”

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