Stablecoin giant Tether (USDT) emerged as the market’s surviving reserve after the FTX crash. But some market experts claim that another FTX-like collapse could happen if attention is not paid. Tether, the company behind USDT, draws attention with its business model at this point.
Is Tether the next risk after the FTX crisis calms down?
According to the Wall Street Journal’s report, Tether lends most of the USDT to make money instead of selling it. The recent change in business model raises risks that the company cannot handle in times of crisis as it will need more liquid assets in its reserves. However, Tether has clarified that only eligible customers can access its credits. He stated that borrowers should offer sufficient liquidity collateral that they can sell for fiat in the event of credit default. These loans were disclosed on Tether’s website for each fiscal quarter of this year.
Meanwhile, the current report shows that as of September 30, the loan reached $6.1 billion, 9% of the company’s net assets. By contrast, loans at the end of 2021 were $4.1 billion. In other words, it was 5% of Tether’s total assets. The company calls these “secured loans” without saying much about the profile of the borrower or the type of collateral they accept before paying the loans.
Commenting on the situation, Tether spokesperson Alex Welch confirmed that all loans listed in the financial reports were issued and expressed in USDT. Therefore, according to the company, the loans were short-term and the collateral was under the custody of Tether.
Other risks surrounding the stablecoin generator
Meanwhile, experts say the increase in Tether’s lending rate points to other risks to the market. USDT is among the stablecoins that form the backbone of the cryptocurrency market. Many crypto holders use USDT for trading as it is pegged to USD. While seemingly risk-free, Tether claims its reserve funds are sufficient. Critics, on the other hand, point out that Tether only shows USD equivalent of loans, without revealing the token amount.
Tether’s failure to prove that liquid assets secured loans was another point criticized as a lack of transparency. Peter Crane of market monitoring platform Crane Data said that Tether’s statements were suspicious. On the subject, “If you have reserves as you claim, why is it best to keep them?” she asked.
Tether’s new business model focuses on speeding up investors’ withdrawals to use tokens. Meanwhile, the crypto market is busy tackling intense liquidity issues. As such, Tether’s ambiguous stance on how it lends its presence is perceived as a sign of danger. As Kriptokoin.com, we have quoted the claims of Bitcoin investor and entrepreneur Mike Alfred in this article.
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