- Tether is the biggest stablecoin in the world with over $67 billion in assets.
- Concern about the safety of Tether have always been around.
- Tether reported $700 million in profits in the fourth quarter.
Tether, the controversial stablecoin, has made headlines for years. Negative stories about the coin have always been around, with most people questioning its safety. Some well-known investors have also placed short bets against the stablecoin. And the noise accelerated after the collapse of Terra USD, Neutrino, and Acala Dollar. So, how safe is Tether USDT in 2023?
Tether profits soared in 2022
Tether is a well-known stablecoin that is backed against the US dollar. It has been around for quite some time and survived some of the biggest crypto implosions of all time. Most of these collapses happened in 2022 when Terra’s ecosystem imploded followed by the meltdown of FTX that we wrote about here.
In a report, Terra announced that its business boomed in 2022 as interest rates soared. Unknown to many, Tether is actually a business that resembles a bank. The only difference is that the company does not lend a substantial amount of money. Instead, it secures its reserves in Treasury bonds and other safe assets.
As such, the company benefited as interest rates rose in the US and around the world. In 2022, the Fed hiked interest rates by over 400 basis points. It then hiked by 0.25% last week and pointed to more increases in the coming months.
Tether ended 2022 with about $67 billion in assets and excess reserves of $960 million. It also reduced its secured loans as its net profit soared to $700 million. Tether will likely continue to do well in 2023 if the Fed maintains interest rates where they are or even hikes. Its profitability happened in a tumultuous year in which the company saw outflows of over $21 billion. The company said:
“Not only were we able to smoothly execute over $21 billion dollars in redemptions during the chaotic events of the year, but Tether has on the other side issued over $10 billion of USD₮, an indication of continued organic growth.”
Read more: How to buy Tether (USDT)
Need for regulation
In my view, I believe that Tether is a safe stablecoin. For one, it is audited by BDO, the fifty biggest audit companies in the world. Also, it is a highly transparent company that provides up-to-date flows of capital in its ecosystem.
Most importantly, Tether had a smooth sailing in one of the most tumultuous years in the crypto industry. This happened even as the company received several hit pieces from mainstream media. Most notably, Hindenburg Research offered a $1 million for information on Tether’s backing. Hindenburg is famous for bringing Nikola Motors and Adani down.
However, the stablecoin industry still needs clear regulation. With Tether operating as a bank, it is not difficult to regulate it as a bank. Doing so will make the crypto industry safer for everyone, including stablecoin issuers like Tether and Circle.
How Tether and Circle makes money
As mentioned, Tether and stablecoin issuers like Circle are big businesses. Circle, the owner of USD Coin, was even valued at over $10 billion in 2023. These companies make money in a similar way to bank.
Once you buy USDT or USDC, the company receives these funds and gives you an equivalent of the stablecoin. After that, the company stores these funds in the form of government bonds and other safe assets and makes money. As such, it makes more money in periods of high-interest rates, such as where we are today.
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