In a surprising turn of events, Tether Holdings has resumed lending its USDT stablecoin to customers, despite its earlier promise to discontinue secured loans. This decision comes amidst concerns within the crypto community about potential risks and market destabilization, given Tether’s significant presence in the stablecoin market.

Tether Secured Loans Make a Comeback

Tether, one of the leading players in the stablecoin market, has decided to restart lending its stablecoin to long-standing customers. The primary motivation behind this move is to provide protection against liquidity shortages and prevent customers from selling their assets at unfavorable rates. This decision was prompted by a series of short-term loan inquiries during the second quarter of 2023, as reported by The Wall Street Journal on September 21.

In its latest quarterly financial statement, Tether disclosed that it had extended $5.5 billion in loans, marking an increase from the previous quarter’s $5.35 billion. This announcement is contrary to Tether’s earlier commitment to reduce secured loans to zero and enhance the health of its reserves during 2023. The crypto industry had previously criticized Tether for concealing details about its reserves, especially when invested in risky financial instruments like Chinese securities.

Unlike traditional financial systems, where central banks control money supply, cryptocurrencies lack a central authority. Stablecoins like USDT are typically issued against inflows of fiat currency, primarily U.S. dollars. Tether’s loans involve issuing stablecoins backed by collateral, predominantly consisting of other cryptocurrencies.

The resurgence of Tether’s lending activities has raised concerns within the crypto industry, despite its market capitalization surpassing $83 billion. USDT has struggled to gain the trust of the crypto community, leading some investors to migrate to alternative stablecoins.

Tether Holdings’ spokesperson, Alex Welch, has assured that these loans will gradually decrease and reach zero by 2024. Welch contends that the loans have played a crucial role in helping customers avoid defaulting on their existing loans and improving liquidity. However, the company’s incomplete financial reports make it challenging to assess its actual financial health.

USDT’s Growing Market Cap and Its Implications

USDT is the second-largest stablecoin, boasting a market capitalization of over $83 billion, while its closest rival, USDC, has a market cap of $26 billion. Tether’s market share has been on the rise, increasing from $68 billion in March. This growth can be attributed to Tether’s foray into mining and investments in Bitcoin.

Despite its significant market presence, the dominance of USDT poses inherent risks to the crypto market, particularly with the resurgence of secured loans. USDT’s recent detachment from its peg amid the Curve pool imbalance has added to the uncertainty. Any unforeseen events affecting Tether and USDT could have a profound impact on crypto prices.

In Conclusion

The decision by Tether Holdings to resume lending its USDT stablecoin has taken the crypto industry by surprise. This move contradicts the company’s earlier commitment to phase out secured loans and improve reserve transparency. As Tether’s market dominance continues to grow, concerns about market stability and the impact of its lending activities on the crypto ecosystem persist. With USDT’s market cap reaching new heights, the crypto community will closely monitor Tether’s actions and their potential consequences.