Stablecoin issuer Tether Holdings has resumed its secured lending services, despite promising to cease this practice less than a year ago, sparking fears of potential market instability due to its significant presence in the stablecoin sector.
On Thursday, Tether announced it had recommenced lending its stablecoin to long-standing customers, following a surge in short-term loan inquiries during Q2 2023. The move is aimed at protecting these customers from liquidity shortages and preventing them from having to sell assets at unfavorable rates.
In its most recent quarterly financial update, Tether reported $5.5 billion of loans, up from $5.35 billion in the previous quarter. This increase comes despite the company's commitment to reduce its secured loans to zero and improve the health of its reserves throughout 2023. This promise was made following criticism from the crypto industry accusing Tether of concealing details about reserves held in risky financial instruments such as Chinese securities.
The company's decision to resume secured lending has raised concerns among market observers, as there is no guarantee that borrowers will repay their loans or that Tether will be able to liquidate these loans promptly. Furthermore, Tether has not provided adequate transparency about the type of collateral provided by borrowers.
Despite this, Tether spokeswoman Alex Welch stated that these loans would be reduced to zero by 2024. She claimed that the lending has helped customers avoid defaulting on existing loans and increased liquidity.
However, the dominance of USDT, Tether's stablecoin, which currently boasts a market cap exceeding $83 billion, poses a risk to the crypto market and existing loans. This figure represents a significant increase from its $68 billion market cap in March, largely due to Tether's foray into mining and Bitcoin investments.
The second-largest stablecoin, USDC, has a market cap of $26 billion, highlighting USDT's dominance. Any unforeseen event impacting Tether and USDT could significantly affect crypto prices, raising further concerns about the company's decision to resume secured lending.
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