Tether was the seventh largest buyer of U.S. Treasury bonds last year. Is it really too big to fail?

Tether CEO Paolo Ardoino proudly shared a chart on X showing that "compared to other countries, Tether is the seventh largest buyer of U.S. Treasuries in 2024," even surpassing Canada and Taiwan.

USDT accounts for 60% of the stablecoin market, holding 113 billion USD in US Treasury bonds.

Tether, as the world's largest stablecoin issuer, currently has a market capitalization of 14.35 billion USD for its dollar-pegged stablecoin USDT, accounting for 60% of the overall stablecoin market. Most of its reserves are used to purchase U.S. Treasury bonds. According to its audited report for the fourth quarter of 2024, Tether's annual net profit exceeds 13 billion USD, holding 113 billion USD in U.S. Treasury bonds.

(Tether made a profit of 13 billion dollars in 2024, with unrealized gains in gold and Bitcoin reaching 5 billion dollars)

As China and Japan significantly sold U.S. Treasury bonds to address domestic economic needs and uncertainty about the U.S. economic outlook, Tether has become a major buyer in 2024. According to Ardoino's post, Tether purchased $33.1 billion in U.S. Treasury bonds last year, second only to the Cayman Islands, France, Luxembourg, Belgium, Singapore, and the UK. Meanwhile, China and Japan are the largest sellers.

Short-term government bonds are only for creating liquidity.

Since Tether's purpose for purchasing U.S. Treasuries is to serve as a stablecoin reserve, they must be able to be sold at any time to create liquidity when needed. Therefore, the purchases are all U.S. Treasury Bills (Treasury Bills), which are short-term bonds maturing within one year.

Compared to the $286.5 billion in short-term U.S. Treasury bills held by Berkshire Hathaway, which is also flush with cash, the amount of $113 billion doesn't seem that large!

( Berkshire stock price hits a new high, will Buffett use his cash to buy the dip or hold onto U.S. bonds? )

Short-term government bonds continue to bring high returns to Tether.

Tether's net profit for the entire year of 2024 is $13 billion, of which $7 billion comes from U.S. Treasury bond yields. Although the U.S. Federal Reserve has initiated a rate-cutting cycle, with the current yield at 4.3%, $113 billion in short-term Treasury bills can still bring in nearly $5 billion in almost risk-free returns over the year.

Tether too big to fail?

Tether claims to bring dollars to over 400 million people through its stablecoin, especially in emerging markets and developing countries. Financial inclusion in these regions heavily relies on USDT.

Tether is currently not directly supervised by any specific regulatory authorities, nor does it have clear reserve investment rules. Regulatory bodies in the United States and the European Union have expressed concerns about the systemic risks of stablecoins, such as the risk that rapid redemptions could pose to traditional banking institutions. However, following the collapse and bank run of Silicon Valley Bank, both Circle and Tether have significantly reduced the amount of bank deposits, opting instead for short-term treasury bills and repurchase agreements. Tether holds 113 billion in treasury bills, which accounts for less than 2% of the estimated total outstanding treasury bills in the overall market, projected to be between 6.6 trillion to 8.3 trillion dollars by the end of 2024. From the perspective of the redemption risk of its held bonds, it should not pose a risk too great to fail.

This article discusses whether Tether, the seventh largest buyer of US government bonds last year, is really too big to fail? It first appeared in Chain News ABMedia.