Is Tether's $72.5 Billion Investing in U.S. Treasury Bonds a Smart Choice or a Risk?

Compile: Blockchain Knight

Tether, the company behind the well-known stablecoin USDT, holds $72.5 billion worth of U.S. Treasuries (T-bills), which was first disclosed in the company’s second quarter 2023 assurance report.

Paolo Ardoino, Tether’s chief technology officer, highlighted this fact on social media platform X on September 5.

According to Ardoino’s post, Tether’s $72.5 billion exposure to U.S. Treasuries makes the stablecoin operator the 22nd largest holder of these bonds, surpassing countries such as the United Arab Emirates, Mexico, Australia, and Spain.

Tether’s CTO also praised USDT’s “high utility” in developing markets in his post, calling the stablecoin a “lifeline” for citizens of many countries suffering from “crazy” inflation rates.

However, Ardoino’s post about Tether’s investment in U.S. Treasury bonds sparked heated discussions among Crypto enthusiasts.

Matthew Dixon, CEO of crypto asset rating platform Evai, expressed concern about the situation. Dixon believes that the news of Tether holding national debt is reassuring, but it is still "worrisome."

He highlighted the possibility of rising interest rates, which could reduce the value of these Treasuries and lead to "panic selling following a black swan".

For context, U.S. Treasury bills, which represent short-term debt backed by the U.S. Treasury Department, are generally considered a safe investment.

Individuals or companies borrow money from the government for a fixed period of time (usually a year or less), and in return the government issues Treasury bills to represent those loans.

Treasuries are generally low-risk investments because the U.S. government repays them, though they are purchased at a fixed rate. Therefore, if interest rates rise before a Treasury bond matures, its market value will take a hit, leaving companies unable to convert the Treasury bonds into cash in case of trouble.

Matthew Dixon believes that in the case of Tether, if this happens, it may trigger market panic, causing users to exchange their USDT for other Crypto assets. In a worst-case scenario, USDT’s peg to the U.S. dollar could be affected.

Interestingly, Tether has made a lot of good progress in 2023.

In May, the company released its assurance report for the first quarter of 2023, showing a $1.48 billion increase in its reserves to $2.44 billion. In July, Tether disclosed in its second-quarter assurance report that additional excess reserve proceeds were $850 million, bringing the company’s total reserves to $3.3 billion.

The USDT stablecoin has also received a lot of attention in 2023, with its market share rising by more than 25% in 2023 alone. According to CoinMarketcap, USDT is currently the largest stablecoin and the third-largest Crypto asset, with a market capitalization of $82.85 billion.