Tether Expands Profits, Dominance, and Bitcoin Holdings as T-Bills and Reverse Repo Become Reserve Standards

Tether, the world’s leading stablecoin issuer, posted its reserve attestation documents for Q1 2023 last week and claimed to have earned quarterly profits of $1.48 billion. That income reflects an ongoing buildup of short-dated US Treasury bills in Tether’s consolidated reserves, which now exceed its liabilities by more than $2.4 billion. The resilience of Tether is a critical pillar for the cryptocurrency market, which has been hollowed out by rising interest rates, exchange bankruptcies, and failed projects over the last year. 

A key change in Tether’s most recent documents include a significant drop in bank deposits and cash exposure amid a mirrored increase in treasury holdings and reverse repurchase agreements. Additionally, gold and Bitcoin holdings are singled out as their own categories within the reserves. The regulatory outlook remains unclear for Tether as the CFTC and SEC are likely to continue their tug of war over who has greater authority in the stablecoin space.

Related Assets: Tether (USDT-USD), USD Coin (USDC-USD), Bitcoin USD (BTC-USD)

For the first quarter of 2023, stablecoin issuer Tether claimed to have earned net profits of $1.48 billion. If accurate, that would far exceed the profitability of Blackrock, the world’s largest asset manager, who posted net profits of $1.16 billion last quarter. Tether’s USDT token is a USD-pegged, asset-backed stablecoin, meaning each token they issue is collateralized by cash or cash equivalents. This backing includes treasury bills, as well as reverse repurchase agreements, and other assets held in reserve. Tether, which is responsible for liabilities (almost exclusively composed of its USDT tokens) currently worth nearly $83 billion, has disclosed several consecutive quarters of breakout profits due to massive holdings of short-dated US Treasury bills. T-bill yields have surged over the last year as the Federal Reserve has ratcheted up interest rates.

According to the most recent independent auditors’ report on Tether’s consolidated reserves, conducted by BDO Italia, more than 64.8% of Tether’s assets were US Treasury Bills with a residual average maturity of less than 90 days on March 31, 2023. Other cash equivalents listed as part of Tether’s attestation include $7.5 billion in overnight reverse repurchase agreements and more than $7.4 billion in money market funds. Those three categories combined were equivalent to 83.0% of all Tether assets at the end of Q1. Overall, Tether’s assets exceeded liabilities by approximately $2.4 billion.

The Fed’s rate hiking cycle was largely bad news for the digital asset industry throughout 2022, as several major projects and enterprises in the space were wiped out by a flight of capital – which MRP regularly covered in our free Weekly Crypto Wrap series – and many of those that survived continue to experience severely diminished market capitalizations. This was not the case for USDT, however, as its current market cap is now almost 6.0% greater than it was at any time in 2021. The strength of stablecoins is significant to the crypto market, as they can…