Tether is buying Bitcoin aggressively, but it should hold cash instead.

The Astonishing Profits of Tether: A Deep Dive into the Blockchain Industry

The blockchain industry is no stranger to controversies and surprises, but one recent development stands out as particularly bewildering – the astonishing quarterly profits of Tether. Tether, known for its market-leading stablecoin USDT, has reported profits exceeding $1 billion, a figure that seems almost unfathomable for a company with just 60 employees. Despite Tether’s history of half-truths and outright lies, there is no concrete reason to doubt this claim, making it all the more baffling.

The Tether Balance Sheet: Investments and Assets

Digging into Tether’s quarterly attestation, it reveals intriguing details about the company’s asset portfolio. Tether holds a substantial amount of U.S. Treasuries, with $55.8 billion invested in Treasury bills alone. This amount places Tether as the 24th largest foreign holder of treasury securities globally. In addition to Treasury bills, Tether also holds $8.9 billion in overnight reverse repurchase agreements and $8.1 billion in money market funds. The company’s attestation report showcases total assets exceeding $86 billion, slightly higher than the market capitalization of USDT. However, it is worth noting that $2.4 billion of these assets are labeled as “Other Investments,” which remains somewhat ambiguous.

Tether’s Unbelievable Profits: Unraveling the Mystery

While Tether’s asset holdings and profitability appear impressive, the reported statement regarding operational profits is truly astonishing. According to a company blog post, Tether’s operational profits for the period from April 2023 to June 2023 exceeded $1 billion, representing a significant 30% increase quarter over quarter. With such a small workforce and substantial profits, Tether appears to be a global leader in per-capita U.S. Treasuries held and operational profits generated.

To understand the factors driving Tether’s profitability, it is crucial to consider the interest rate landscape. Over the past year, interest rates have risen substantially, and Tether’s business model benefits greatly from this trend. While one-month Treasuries yield 5.378%, USDT itself does not yield anything. As a result, Tether collects the difference between the interest generated from holding billions of dollars worth of Treasuries and the absence of interest offered on USDT.

Potential Reinvestment Strategies and Cash Storage

Given Tether’s newfound profitability, there is considerable speculation about how the company might utilize its surplus. Many have suggested reinvesting customers’ USDT collateral, which Tether has already partially pursued by investing $1.7 billion in Bitcoin. In addition, Tether has explored avenues such as sustainable Bitcoin mining in Uruguay and investments in a Georgia-based payment processor.

However, an alternative proposal emerges – Tether could consider increasing its cash reserves. While U.S. Treasuries, reverse repurchase agreements, and money market funds are relatively liquid assets, they do not provide the same level of flexibility as actual cash. Tether’s cash balance has dwindled to just $90.8 million, a significant decline from $5.3 billion in December 2022. Although the reduction may result from Tether’s decision to allocate cash to high-yielding Treasuries, the trend raises concerns. Silicon Valley Bank serves as a cautionary tale, emphasizing the importance of sufficient cash reserves to withstand potential liquidity issues.

The Controversy Surrounding Tether: Assurance vs. Audits

The mind-boggling profitability of Tether only adds fuel to the ongoing speculation and controversies surrounding the company and its stablecoin, USDT. Tether has faced regulatory challenges in the U.S., a situation that is unlikely to dissipate anytime soon. However, it is crucial to differentiate between assurances and audits.

Tether’s quarterly attestation provides a level of assurance regarding its financial figures but falls short of a comprehensive audit. Audits are extensive examinations that aim to uncover undisclosed issues, whereas attestations focus on validating already stated information. Although Tether’s attestations may lend credibility to the reported figures, they are not equivalent to the stringent standards and thoroughness of an audit.

Conclusion: The Intricacies of Tether’s Rise

Tether’s astonishing profits and the company’s place at the forefront of the blockchain industry raise numerous questions and discussion points. While Tether’s substantial holdings of U.S. Treasuries contribute significantly to its profitability, ongoing debates surrounding the utilization of these profits persist. Whether Tether should consider diversifying investment strategies or increasing its cash reserves remains a topic of interest.

As the blockchain industry continues to evolve, Tether’s continued success and profitability will undoubtedly attract scrutiny and interest from both industry insiders and regulators. The need for complete transparency and rigorous auditing processes will remain essential to foster trust and stability within the blockchain ecosystem.

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Edited by Daniel Kuhn.

Attestations,Bitcoin,Cash,Newsletters,Opinion,Tether,The Node,Treasury Bills

Tether is buying Bitcoin aggressively, but it should hold cash instead.