This week, renewed concerns emerged regarding the financial stability of Tether, a major stablecoin issuer, following a warning from BitMEX founder Arthur Hayes. Hayes suggested that Tether could encounter significant challenges if the value of its reserve assets were to decline. However, James Butterfill, CoinShares’ head of research, countered these concerns. In a market update on December 5, he stated that worries about Tether’s solvency seem “misplaced.” He highlighted Tether’s latest attestation, which reveals $181 billion in reserves against liabilities of approximately $174.45 billion, resulting in a surplus of nearly $6.8 billion. Butterfill emphasized that while stablecoin risks should not be entirely overlooked, the current data does not point to any systemic vulnerability. Tether remains one of the most lucrative companies in the sector, having generated $10 billion in profits over the first three quarters of the year, a notably high amount on a per-employee basis.
Speculation about Tether's financial health is not new, as media scrutiny over its reserves and asset backing has persisted for years. The latest wave of solvency concerns seems to have been triggered by Arthur Hayes, who claimed that Tether is in the early stages of executing a large interest-rate trade. He argued that a 30% decrease in Tether's Bitcoin (BTC) and gold reserves could eliminate its equity and render its USDt (USDT) stablecoin technically “insolvent.” Tether has indeed increased its gold exposure in recent years, making both Bitcoin and gold significant components of its reserves.
More criticism has been directed towards Tether beyond Hayes' remarks. CEO Paolo Ardoino recently dismissed S&P Global’s downgrade of USDt’s ability to maintain its US dollar peg, labeling it as “Tether FUD,” which stands for fear, uncertainty, and doubt. Ardoino defended the company by referencing its third-quarter attestation report. S&P Global downgraded the stablecoin due to concerns over stability, pointing to its exposure to “higher-risk” assets like gold, loans, and Bitcoin.
Despite these criticisms, Tether’s USDt remains the most prominent stablecoin in the cryptocurrency market, boasting a circulation of $185.5 billion and capturing nearly 59% of the market share, according to CoinMarketCap.