Tether plans to stop using loans denominated in its tether stablecoin throughout 2023, following a report on the potentially risky practice
The rapid growth of Tether's lending program raised concerns about its ability to meet redemptions in a crisis — Created with sketchtool.
Context & Ripple Effects
Two weeks before this announcement, the Wall Street Journal reported that Tether's self-denominated loan book had grown to $6.1B as of September 30 — loans made and repaid in tether itself, which critics argued could leave the issuer unable to meet redemptions in a crisis. The pledge to wind those loans down through 2023 is Tether's second high-profile reserve cleanup in as many months, after it claimed in October to have eliminated its commercial paper holdings in favor of US Treasury bills.
The pattern matters because Tether has already survived large redemption runs during the crypto winter, so each disclosed vulnerability lands on an issuer whose credibility with redeemers is the product. And the cleanup did not stick: less than a year later Tether confirmed it had resumed stablecoin lending, with $5.5B of assets still in loans as of June 30.
First-order effects
- Tether's clients who borrowed in USDT must repay or refinance those positions during 2023, shrinking a lending program that had become one of the fastest-growing lines on its balance sheet.
- Tether's reserves shift further toward liquid instruments like Treasury bills, extending the de-risking it began by exiting commercial paper.
Second-order effects
- Crypto firms that used tether-denominated loans as a funding source lose a credit line at a time when broader crypto lending is contracting, pushing borrowers toward remaining lenders or asset sales.
- Rival stablecoin issuers face the same disclosure standard: once the Journal's reporting forced Tether to act, opaque self-lending becomes a liability competitors can be pressed on too.
Third-order effects
- If the pattern holds, stablecoin reserve composition gets reshaped less by regulation than by investigative reporting and redemption fear — though Tether's later return to lending shows these commitments are reversible, leaving enforcement dependent on continued scrutiny rather than binding rules.
The trend: Stablecoin issuers are being pushed toward transparent, liquid reserves by press scrutiny and redemption-run risk, with Tether's repeated cleanups — and reversals — marking the frontier of that pressure.