The cryptocurrency community was taken aback recently to learn that Tether, the company driving the popular USDT stablecoin, appears to be lending out stablecoins at an unexpectedly high level. A recent report from The Wall Street Journal indicates the stablecoin powerhouse has made out loans amounting to 5.5 billion dollars as of end-June 2021. The figures are of particular interest given a prior announcement from Tether stating they would stop issuing loans by the close of 2023.
Tether‘s decision to continue and, indeed, increase lending activity stirs questions about their capability to accommodate sudden large-scale redemptions. The steady expansion of Tether’s market share in the face of weakening position of its principal competitor, USDC, also generates concern. Recent trends suggest that the markets have been warming to Tether, adding as much as 10 billion dollars to its capitalization in spite of USDC’s difficulties.
It is vital to note, at this juncture, that Tether’s growth in market share is not being mirrored by an equal growth in transparency. Questions remain concerning the firm’s liquidity and the magnitude of their capital reserves—the very questions that create hesitation about the wisdom of issuing sizable loans.
Tether’s rather cryptic operations are a backdrop to concerns over their current lending strategy. The lack of transparency about the identity of the borrowers or the specifics of the collateral being used for these loans is unsettling. There are reservations about the stability of the stablecoin, the alarming acceleration in loans being issued could clearly pose risks if users began to have doubts about Tether’s financial steadiness.
Reassurances about the company’s capacity to handle its loan portfolio come in the form of a recent company statement. Tether claims all its circulating tokens are fully supported by cash or liquid assets. They go on to assert that an additional safety net has been provided by accumulating more than 3.3 billion dollars in spare reserves. Underlining their commitment, Tether insists they are “still focused on removing the secured loans from its reserves.”
A reassuring statement, perhaps, but the question remains: Is it wise to rely on the promise of a company whose commitment to cease issued loans does not seem fully implemented? Is it responsible to place faith in loadsof liquidity claims that are not adequately substantiated? As the power balance in the stablecoin market shifts, these questions become more and more critical. Concerns of today could potentially be the crises of tomorrow. The cryptocurrency community would do well to watch this space closely, engaging with both discernment and caution as the new era of digital currencies unfolds.
Source: Cryptonews
