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In a surprising twist that has turned heads in the cryptocurrency world, Tether Holdings, the entity behind the USDT stablecoin, has discreetly restarted its lending operations, providing USDT stablecoins to long-standing clients. This move also comes with a significant development – the extension of the timeline for reducing these loans to zero, pushing it to 2024. This decision follows Tether’s pledge a year ago to discontinue secured loans, a move that had drawn scrutiny from crypto investors concerned about potential risks, especially given Tether’s prominent position in the stablecoin market.
The Return of Tether’s Secured Loans
Tether has brought back its practice of lending USDT stablecoins to its loyal clientele, with the aim of safeguarding them against liquidity shortages and the necessity of selling assets at unfavorable rates. This resurgence in lending activities comes on the heels of multiple inquiries about short-term loans during the second quarter of 2023, as first reported by The Wall Street Journal on September 21.
In the most recent quarterly financial statement, Tether disclosed a total of $5.5 billion in loans, a noticeable increase from the $5.35 billion reported in the preceding quarter. Notably, Tether had previously committed to phasing out secured loans entirely while improving the health of its reserves throughout 2023. Criticism had emerged within the cryptocurrency industry regarding Tether’s opacity in disclosing the details of its reserves, which were rumored to be invested in potentially risky financial instruments such as Chinese securities.
It’s important to understand that cryptocurrencies operate without central banks, meaning there is no inherent mechanism for expanding the money supply. In contrast, stablecoins are typically issued in direct proportion to the inflow of fiat dollars. However, Tether’s loans are different; they are issued against various forms of collateral, primarily composed of other cryptocurrencies.
Growing Concerns Amid Increased Lending Activity
The resurgence of lending by Tether has sparked concerns within the crypto community. Despite recapturing a market capitalization that exceeds $83 billion, USDT has struggled to regain the trust of crypto enthusiasts. Some investors have shifted their allegiance to alternative stablecoins due to lingering doubts about Tether’s practices.
Tether Holdings’ spokesperson, Alex Welch, sought to allay these concerns by asserting that the loans would gradually decrease to zero by the year 2024. Welch argued that these loans had played a pivotal role in preventing customers from defaulting on existing loans and had boosted overall liquidity. However, the lack of complete financial transparency in Tether’s reports leaves its actual financial health shrouded in mystery.
Market Cap Growth of USDT Raises Market Concerns
A noteworthy development is the widening gap between USDT and its closest stablecoin competitor, USDC, which boasts a market capitalization of $26 billion. In contrast, USDT’s market cap has surged past $83 billion. This growth can be attributed to Tether’s foray into cryptocurrency mining and investments in Bitcoin. However, this dominance of USDT in the market raises substantial concerns about the overall stability of the cryptocurrency ecosystem, particularly in relation to the outstanding loans.
Recent events, such as the depegging of USDT linked to imbalances in the Curve pool, have underscored the potential risks. Any unexpected occurrence involving Tether and USDT could have far-reaching consequences for cryptocurrency prices, given their significant market presence and influence.
As the cryptocurrency community continues to keep a close watch on these developments, the actions and policies of Tether Holdings remain under intense scrutiny, driven by concerns about their potential impact on the stability of the broader cryptocurrency market.
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