Tether said it is winding down its practice of lending out its own stablecoins to customers by next year, addressing a broad risk to the wider crypto world.
In a blog post published on its website on 13 December, the company said it would reduce secured loans issued and denominated in tether to zero throughout 2023.
The growth in Tether’s secured-loan program was the subject of a Wall Street Journal article earlier this month. With about $66bn tether in circulation, tether is the market’s largest stablecoin, a digital asset that is supposed to have a fixed value pegged to the US dollar. The appeal of tether is that, unlike bitcoin and other cryptocurrencies that experience volatile price swings, one coin could be sold or redeemed for $1.
Tether isn’t a household name, but it is a cornerstone to the crypto ecosystem. Traders often use tether as an easier way to buy crypto than through bank accounts or wire transfers.
Stablecoin issuers take pains to demonstrate that they have ample funds available for redemptions. Cash and other safe financial instruments easily convertible into dollars make up the vast majority of the assets Tether lists in quarterly financial reports, but the company’s secured-loan program has been growing. Tether can’t be certain the loans will be paid back, that it could sell the loans to a buyer for dollars in a pinch or that the collateral it holds will be adequate. That could make it difficult for Tether to cover a large volume of redemptions in a crisis.
All secured loans listed in the reports were collateralised by lots of what the company called “extremely liquid assets” that could be easily sold for dollars in the event of a default, the Journal previously reported.
“Understandably, after the events that have unfolded this year, the company recognises that it is mission critical to restore faith in the market,” Tether said in the blog post on 13 December.
Quarterly financial reports published on Tether’s website showed that secured loans reached $6.1bn as of 30 September, or 9% of the company’s total assets. They were $4.1bn, or 5% of total assets, at the end of 2021.
Tether might not have to sell any of the loans to meet its deadline. A spokeswoman told the Journal last month that the loans Tether issues are short-term.
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This article was published by The Wall Street Journal, part of Dow Jones