Tether's Controversial Loan Services Raise Eyebrows Once Again
Tether (USDT), a prominent stablecoin issuer, has quietly resumed its secured lending services, despite public promises to discontinue this practice earlier this year. This move has reignited concerns within the crypto community about the stability and transparency of such lending services.
According to Tether's quarterly financial update, as reported by the Wall Street Journal, the stablecoin issuer's loan assets surged to $5.5 billion by June 30, up from $5.3 billion in the previous quarter. Tether explained this increase as resulting from "a few short-term loan requests from clients with whom [the company] have cultivated longstanding relationships."
Tether's lending services involve issuing loans denominated in its USDT tokens to borrowers. However, this practice has raised several red flags among market observers. One major concern is the uncertainty surrounding whether borrowers will repay these loans or if Tether can sell the loans immediately if needed. Additionally, Tether has been criticized for not providing sufficient transparency regarding the collateral used by borrowers.
In the wake of last year's market downturn, several crypto lending service providers, including Celsius and BlockFi, faced significant challenges and had to reevaluate their business models, leading to concerns about the stability of lending practices within the crypto industry.
Tether has consistently maintained that the secured loans held in its reserves are "overcollateralized" and backed by highly liquid assets. However, given Tether's status as the largest stablecoin in the market, any major issues with its business could have far-reaching implications for the entire crypto industry.
Tether's Stance on Secured Loans
In a statement issued on September 21, Tether reaffirmed its commitment to removing secured loans from its reserves. However, the company did not provide a specific timeline for this removal. Tether's spokesperson indicated to the Wall Street Journal that the company aims to complete the removal of such loans by the next year.
To address the concerns raised by its secured loans, Tether claimed that it has accrued more than $3.3 billion in excess reserves to mitigate its exposure to secured loans. The company argued:
"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."
Despite these assurances, the crypto community continues to scrutinize Tether's lending practices closely. The outcome of Tether's efforts to remove secured loans and maintain financial stability will undoubtedly remain a topic of significant interest within the cryptocurrency space, with implications for the broader market's confidence in stablecoins and lending services.