Tether, the largest issuer of stablecoins in the cryptocurrency market, has witnessed an increase in stablecoin loans, despite announcing plans to eliminate such loans entirely by December 2022.
According to Tether's latest quarterly report, the company's assets included $5.5 billion in loans as of June 30, up from $5.3 billion in the previous quarter. A Tether spokesperson explained to the Wall Street Journal that the recent rise in stablecoin loans is a result of some short-term loan requests from clients with whom the company has "long-term relationships." The spokesperson also stated that Tether intends to phase out these loans completely by 2024.
Stablecoin loans have become a popular lending product offered by Tether, allowing customers to borrow USDT in exchange for providing collateral. However, these secured loans have been a subject of controversy due to a lack of transparency regarding the collateral and borrowers.
In a December 2022 report, the Wall Street Journal raised concerns about these products and suggested that the loans were not fully backed by collateral. The publication also questioned Tether's ability to meet redemption requests during times of crisis. Tether addressed these concerns in 2022 and subsequently announced plans to eliminate guaranteed loans in 2023. At that time, the stablecoin issuer referred to concerns surrounding the secured loans as "FUD" (Fear, Uncertainty, Doubt) and asserted that the loans were overcollateralized.
The recent increase in Tether-backed loans is attributed to the company's dominant position in the market and growing profits. Tether reported surplus reserves of $3.3 billion in September, a substantial increase from $250 million in 2022.
Tether emphasized that with $3.3 billion in excess equity and a projected annual profit of $4 billion, it effectively offsets the secured loans and retains such profits on its balance sheet. Tether remains committed to phasing out collateralized loans from its reserves.
