Stablecoin Issuers Like Tether May Book Big Profits Soon

Tether is reportedly expecting another $700 million in Q1 profits, which would double down on its Q4 gains

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Tether is reportedly expecting more big profits this quarter under market conditions that bode well for stablecoin issuers holding piles of short-dated, yield-bearing securities in a high interest rate environment.  

Tether Chief Technology Officer Paolo Ardoino estimates the company is set to book a $700 million profit in the first quarter, Bloomberg reported

The company added $700 million to its Tether reserves via net profits during the fourth quarter of 2022, Tether said in February. The fourth quarter report highlighted a $300 million reduction in secured loans and “the highest percentage to date of assets allocated in US Treasury Bills,” — with exposure amounting to 58%. 

A Tether spokesperson did not immediately comment.

A spokesperson for the issue of stablecoin tether (USDT) told Blockworks earlier this month that it holds “a strong, conservative, and liquid portfolio” that comprises short-term US Treasurys, as well as cash and cash equivalents.

An allocation to short-dated Treasurys securities, such as Treasury Bills, has protected stablecoin issuers from a decrease of liquidity in the Treasury bond market, Kaiko research analyst Conor Ryder said at the time. 

“Put simply, Tether holds a giant pile of yield-bearing fixed-income securities and passes none of the interest income it earns on those assets to stablecoin holders, instead retaining it all as profit,” said Alex Thorn, head of research at Galaxy Digital. “As rates rise, their profit rises.”

The Federal Reserve has raised interest rates by 75 basis points or 50 basis points over the past year. Its latest bump this week amounted to a 0.25% increase

Circle, the issuer behind USDC, did not return a request for comment on its estimated first quarter earnings.

The fair value of assets held in Circle’s USDC Reserve was $42.3 billion, as of Jan. 31, according to a Circle accounting report. Roughly $33.7 billion of that amount, or nearly 80%, was allocated to US Treasury securities. 

Meanwhile MakerDAO, which has its own stablecoin, DAI, declined to forecast its financials, noting it would produce a first quarter financial report in the coming weeks. 

The DAO was seeking to increase its investments in US Treasurys and bonds to $1.25 billion, according to a proposal earlier this month. 

“In a high-interest rate environment, these issuers should be receiving significant yield on stablecoin collateral — varying significantly, though, depending on the composition of reserves and portfolio duration,” Thorn said.


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