Tether Reports $700 Million in Net Profit Boosts Cryptocurrency Reserves
As the cryptocurrency market continues to grow, Tether Holdings Ltd, the entity behind the largest stablecoin, has announced that more than $700 million in "net profit" was added in the fourth quarter to the reserve that backs the world's most traded digital asset. This is the first time Tether has given profit figures, and it is a significant milestone for the company and the broader cryptocurrency market.
Tether's attestation of reserves was conducted by accounting firm BDO Italia, which analyzed Tether's reserves as of December 31, 2022. The report shows that Tether held roughly 82% of the $67 billion in assets backing its stablecoin USDT in cash and cash-equivalents. Stablecoins are digital tokens that aim to keep a one-to-one value with a less volatile asset like the dollar, typically by maintaining large reserves as segregated collateral.
The news of Tether's net profit and stablecoin reserve comes at a time when the cryptocurrency market is experiencing increased scrutiny from regulators and investors. The collapse of TerraUSD in 2022, which relied on algorithmic incentives with its sister token LUNA to stay afloat, raised concerns about the assets and practices used to back stablecoins. Regulators have since pushed for further transparency from stablecoin issuers, with others such as Circle Internet Financial Ltd. moving to issue reserve attestations on a monthly basis.
Tether's announcement of net profit and reserves could potentially help alleviate some of the concerns surrounding stablecoins, as it shows that Tether is taking steps to maintain the stability of its stablecoin USDT. However, it is important to note that third-party attestations are not the same as financial audits, and they are limited to a snapshot in time and do not allow full access to a company's books.
More than $39.2 billion of Tether's reserve was held in short-dated US Treasury bills, an asset that has risen in popularity among stablecoin operators' reserves as US interest rates spiked in 2022. The amount held with money-market funds rose 3.8% quarter-on-quarter to $7.4 billion, while its holdings in cash and bank deposits fell 12% to $5.3 billion. Its overall reserves decreased by 1.6%, in line with USDT's circulation.
Tether also listed around 8.7% of its reserves in secured loans to non-affiliated entities, a practice that came under scrutiny after it emerged that Tether had loaned assets to bankrupt crypto lender Celsius last year. The firm said in December that it would steadily wind down such activities in 2023.
In conclusion, Tether's announcement of net profit and reserves is a significant development for the cryptocurrency market, particularly the stablecoin sector. While it is too early to determine the full impact of this news, it shows that Tether is taking steps to maintain the stability of its stablecoin USDT, which could potentially help alleviate some of the concerns surrounding stablecoins. However, investors should always exercise caution and perform their own research before investing in any cryptocurrency or stablecoin.
