Tether Silently Lending Out USDT Stablecoin Again

Steblecoin issuer Tether Holdings started lending USDT stablecoins to customers a year after the company promised to stop offering secured loans. Tether’s secured loans raised concerns among crypto investors as it could have potential risks and destabilize the market due to its dominance in stablecoins.

Tether Secured Loans Rising Again

Tether has restarted lending its stablecoin to long-standing customers after a brief halt, aiming to safeguard them from liquidity shortages or selling assets at inopportune rates. The move follows multiple short-term loan inquiries in Q2 2023, reported The Wall Street Journal on September 21.

Tether reported $5.5 billion of loans in its latest quarterly financial statement, which has increased from $5.35 billion in the previous quarter. The company promised to reduce its secured loan to zero and improve reserves’ health during 2023, after the crypto industry blasted Tether for hiding details on reserves in risky financial instruments such as Chinese securities.

Typically, there’s no way to internally expand the money supply in crypto because there’s no central bank, and stablecoins are only issued against inflows of fiat dollars. Tether loans are stablecoin issuance against other collateral, mostly other crypto.

The increase in lending represents a potential risk to the crypto industry. Despite regaining the market cap above $83 billion, USDT failed to gain trust of the community. Some investors have switched to other stablecoins.

Tether Holdings spokeswoman Alex Welch said these loans would reduce to zero by 2024. She asserts the loans have actually helped customers avoid defaulting on existing loans and increase liquidity. The company’s incomplete financial reports don’t reveal the company’s actual financial health.

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USDT Market Cap Rise Poses Risk

The second largest stablecoin USDC has a market cap of $26 billion. Whereas, USDT has a market cap of more than $83 billion. The market share has increased from $68 billion in March due to Tether’s entry into mining and Bitcoin investments.

However, the dominance of USDT poses a risk to the crypto market and present loans. USDT depegged recently amid the Curve pool imbalance. Any unknown event to Tether and USDT will impact crypto prices significantly.

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