Tether still has nearly $5 billion in loans despite pledging to reduce exposure to zero

The stablecoin giant Tether has spent years trying to shirk allegations of opaque operations and reserves. The crypto firm's latest attestation boasts record profits but leaves unanswered questions about its secured loan program, which still stands at nearly $5 billion despite pledges to reduce exposure to zero.

Tether says its eponymous stablecoin, currently the largest in circulation with a market cap of over $96 billion, is backed one to one mostly by U.S. dollar equivalents like Treasury bills, a claim often disputed by critics and addressed through quarterly attestation reports by the accounting firm BDO Italia.

Recent quarterly attestations have revealed growth in Tether's secured loan program, where a percentage of its reserves is lent out to unknown borrowers. In its attestation from the second quarter of 2023, released in October, Tether said it had nearly $5.2 billion in outstanding loans, despite previously claiming it would reduce its secured loans to zero during 2023.

While it was a reduction from the previous quarter, Tether only had excess reserves of $3.2 billion, meaning the loans constituted $2 billion of its reserves. If borrowers couldn't pay back the loans, the result could have been a shortfall in Tether's holdings in the event of mass redemptions—a potential risk to the stablecoin, whose massive footprint undergirds much of the crypto ecosystem.

In response to a September article about its second-quarter attestation, which revealed loans of $5.5 billion, Tether spokesperson Alex Welch told the Wall Street Journal that the firm had received "a few short-term loan requests" from clients with longstanding relationships and decided to accommodate them. She added that the loans would be eliminated by 2024.

The report raised speculation over Tether's business activities. With interest rates at historic highs, the company could secure easy profits by putting the stablecoin reserves in U.S. Treasury bills and other dollar-like equivalents. Instead, a significant portion of its reserves were held in Bitcoin, loans, and a $2.2 billion category called "other investments."

Bloomberg columnist Matt Levine wrote that Tether was likely making the loans to "support its borrowers," meaning it has collateral in assets like cryptocurrencies and wants to exchange them for dollars. "Tether will provide the money, secured by the crypto, not because that’s a good deal for Tether but because Tether is being a good citizen of the crypto ecosystem and supporting its counterparties," he wrote.

'Still committed'

Tether's fourth-quarter attestation, released on Wednesday, reveals a slight reduction to Tether's secured loan program, which now stands at $4.8 billion, although its excess reserves of $5.4 billion are now larger.

"Tether is proud to announce that it has achieved its goal of removing the risk of secured loans from the token reserves," the firm wrote in an accompanying blog post. "While such secured loans are widely overcollateralized, Tether accumulated enough excess reserves to cover the entirety of the exposure."

The post adds that the increase in excess reserves is a result of a "record-breaking" net profit of $2.85 billion, as well as the appreciation of its gold and Bitcoin reserves.

Despite the milestone, Tether has not reduced its loan program to zero. Furthermore, its attestation shows that much of its reserves are still volatile assets, including $2.8 billion of Bitcoin and $5.6 billion classified as "other investments."

When contacted by Fortune, Tether spokesperson David Pourshoushtari pointed to a blog post published after the Wall Street Journal's September report. In the post, Tether writes that the banking industry has proven "incapable of keeping up with evolving global financial markets, something the Wall Street Journal has disregarded countless times in pursuit of tarnishing the reputation of true innovators like Tether." It muses that the Wall Street Journal's reporting is "merely an attempt to manipulate tabloid-style reporting to appease their 'friends' entrenched in the old guard."

The September post does not address why Tether continues to have billions in loans, but says that the firm is "still committed to removing the secured loans from its reserves."

Pourshoushtari did not respond to a follow-up question.

This story was originally featured on Fortune.com