Tether Resumes Controversial USDT Lending Business with $5.5B in Issued Loans

Tether Holdings Limited has resumed lending its own stablecoins USDT to customers. The decision comes less than a year after the platform announced it would discontinue the practice.

In 2022, Tether had announced a decision to reduce secured loans in its reserves to zero in 2023 following controversies about the products and claims that the loans were not fully collateralized.  Its ability to meet redemption requirements in times of crisis was also questioned. The stablecoin issuer then stated that the concerns around secured loans “FUD” and claimed the loans were overcollateralized.

Fast forward to this year, the company’s latest quarterly financial update showed the stablecoin issuer has increased its issuing of USDT-denominated loans. As of June 30, its assets included $5.5 billion of loans. This is an increase from $5.3 billion a quarter earlier.

A Tether spokeswoman, Alex Welch, confirmed to The Wall Street Journal (WSJ) that the company has made new loans. She said:

“During the second quarter of 2023, we received a few short-term loan requests from clients with whom we have cultivated long standing relationships, and we made the decision to accommodate these requests”.

Welch stated that the reason for resuming the issue of loans was to prevent any significant decline of customers’ liquidity, and to assist clients so they did not have to sell their collateral at potentially unfavorable prices, which could result in losses. However, she also disclosed that loans would be reduced to zero by 2024

Uncertainties Surrounding Tether Loan

Following the firm’s decision to resume lending, there are concerns about the services as the practice offers no certainty that the borrowers will pay back or that the stablecoin issuer will be able to sell the loans immediately. Moreover, Tether has not provided adequate transparency on the kind of collateral the borrowers will provide or show what those assets are.

Recalling crypto lending service providers like BlockFi, Celsius that folded up last year following the record market downturn seems to have added fuel to the community’s concerns.

However, Tether addressed these issues by reaffirming its commitment to offset secured loans from its reserves, saying it has accumulated more than $3.3 billion in excess reserves to effectively reduce secure loan exposure as net result.