Leading stablecoin issuer Tether, the firm behind the USDT token, has recently revealed that it amassed $2.5 billion in excess reserves, and that it now plans to use 15% of its realized net operating profits to invest in the flagship cryptocurrency Bitcoin ($BTC).
According to a recent announcement, Tether’s excess reserves currently account for approximately 3% additional value on top of the company’s minimum 100% reserves that are used to back the stablecoins it has in circulation. Its reserves generate revenue through interest rates on the company’s substantial U.S. Treasury bill portfolio and other investments, including gold.
Tether’s leading product, USDT, currently has $82.84 billion in tokens circulating, each being backed 1:1 by cash or short-term investments in the company’s reserves, according to it. Tether’s decision to maintain these excess reserves underscores its commitment to ensuring the resilience of its stablecoin product, its CEO Paolo Ardoino said.
Unlike traditional banks, which operate on a fractional reserve basis, Tether maintains its cryptocurrencies backed by mostly cash and short-term U.S. Treasury bills. At the time of writing, 1-month U.S. Treasurys are yielding around 5.59%.
From the latest attestation dated March 31, 2023, Tether revealed that it held about 2% of its portfolio in Bitcoin. The company has now announced its commitment to using up to 15% of its newly monthly net operating profits, accounting for the realized dollarized profits from its T-bill and similar investments, to purchase Bitcoin as part of its excess reserves.
Currently, the total value of Bitcoin in Tether’s portfolio is well below its own excess reserves, amounting to approximately $1.5 billion versus $2.5 billion. Ardoino stated that the company plans to maintain this trend, with only up to 15% of net operating profits allocated to continuous Bitcoin purchases.
As to why Tether has chosen to invest in Bitcoin over other assets, Ardoino pointed to Bitcoin’s unique qualities. He described Bitcoin as the epitome of a sound and secure monetary system, praising its decentralized nature and scarcity.
He also noted that Bitcoin is revolutionizing the concept of money and challenging traditional finance, providing access to the global financial system for anyone with an internet connection.
Last week, Tether reported a net profit of $1.5 billion for the first quarter of the year, more than doubling its performance from the previous period of 2022. The company disclosed its BTC allocations, as well as allocations to physical gold, overnight repo, and corporate bonds, with holdings o $3.3 billion in precious metals.
According to Tether, the lion’s share of its investments, approximately 85%, is held in cash, cash equivalents, and other short-term deposits. Gold and bitcoin represent about 4% and 2% of the total reserves, respectively. It’s worth noting Tether also issues a gold-backed stablecoin called Tether Gold (XAUT).
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