While Tether’s USDT is often referred to as a fiat-backed stablecoin, in reality, bank deposits make up just a small portion of USDT reserves, with the company preferring US Treasury Bills as a more profitable cash-like investment.
In 2023, soaring interest rates have increased the returns Tether makes on T-bills and other cash-equivalent assets, which now make up the highest proportion of its reserves the company has ever reported.
From $73.57B at the end of Q2, the value of cash and cash equivalent assets held in Tether’s reserves increased to $74.06B at the end of the third quarter, the firm’s latest attestation report reveals.
Between the end of June and the end of September, the overall value of Tether’s reserves decreased by around 0.3% to $86.38B.
Having increased its cash-like holdings during a period in which the overall reserve pool shrunk, T-bills, bank deposits, and other liquid, dollar-based assets made up more of Tether’s reserves than ever before: 85.7% of the total.
The most notable change to the makeup of Tether’s reserves can be observed in the value of its bank deposits, which more than tripled to 292.64M. Meanwhile, the company’s T-bill holdings increased by 1%, accounting for around a third of the total reserves.
As well as potentially contributing to October’s Bitcoin price rise, the high-interest rates that have characterized 2023 mean Tether’s increased exposure to US money markets will have generated a healthy yield.
As a private company, Tether doesn’t publish financial statements, so information on its earnings is hard to come by. Nevertheless, some rough and ready calculations suggest that the company may have accrued quarterly profits of over $900M.
Based on average daily rates in Q3, Tether’s $56.6B worth of T-bills would have generated between $737M and $796M in interest for the stablecoin issuer. That equates to between $7.9M and $8.6M per day!
Meanwhile, although Tether doesn’t disclose which money market funds it invests in, it is safe to assume that they deliver comparable returns to its direct Treasury holding. A similar observation also applies to repurchase agreements, which typically offer similar annualized returns to holding T-bills indefinitely.
Accordingly, Tether’s investments in funds and repos, which were worth over $17B at the end of September, would have generated the firm up to $114M during the period.
The two smallest components of Tether’s cash-like reserves – bank deposits and non-US Treasuries – represent a negligible portion of the company’s income.
Overall then, in the third quarter of 2023, a reasonable estimation of Tether’s revenue from cash-like investments suggests the firm earned between $9.08M and $9.79 each day.
As CEO Paolo Ardoino explained in a statement emailed to CCN, due to the high interest rates on US T-Bills, Tether has been achieving an average of $1B per quarter in net operating results.
“A significant portion of these profits has been prudently retained within our reserves, contributing to the accrual of excess reserves,” he noted, adding that the company’s stablecoins are now overcollateralized by as much as 104% thanks to $3.2B in excess reserves.
Aside from recycling profits back into its stablecoin reserves, Tether reported that during Q3 2023, it also invested nearly $669M in sustainable energy, Bitcoin mining, data and P2P technology.
For example, in September, the company acquired a 400M euro stake in Europe’s largest Bitcoin miner Northern Data Group. Aside from Bitcoin mining, the equity deal also gives Tether a foothold in the European data center business, as well as the booming cloud and AI services sector