Arthur Hayes Warns Tether May Face Insolvency Risk from Asset Shift

TLDR

• Arthur Hayes warns Tether’s Bitcoin and gold shift could threaten USDT equity in a market downturn.
• Tether holds nearly $13B in gold and $10B in Bitcoin, according to the latest attestation.
• S&P assigns Tether a weak stability score due to rising exposure to volatile assets.
• Tether earns $10B annually from Treasuries but is preparing for lower rates with asset diversification.

Tether’s recent move to increase exposure to Bitcoin and gold has drawn concern from BitMEX co-founder Arthur Hayes. He warned that a sharp decline in these assets could potentially place USDT in a position of theoretical insolvency. The stablecoin issuer has reportedly adjusted its reserve strategy in anticipation of interest rate cuts by the U.S. Federal Reserve.

In a recent post on X, Hayes noted that Tether is reducing reliance on interest-bearing Treasury assets. Instead, the company is adding more Bitcoin and gold to its reserves. He suggested this strategy reflects a bet on falling interest rates, which would decrease Tether’s earnings from traditional financial instruments.

Shift in Tether’s Reserve Composition

According to Tether’s latest reserve report, the firm manages total assets of approximately $181 billion. The bulk of these holdings are in cash, Treasury bills, repurchase agreements, and money market funds. However, nearly $13 billion is now in precious metals, and Bitcoin holdings have grown to around $10 billion.

Hayes expressed concern that a 30% market drop in the gold and Bitcoin reserves could eliminate Tether’s equity buffer. He stated, “A roughly 30% decline in the gold + $BTC position would wipe out their equity, and then USDT would be in theory, insolvent.”

He also said this shift could lead exchanges and institutional holders to demand real-time transparency of Tether’s balance sheet to monitor solvency risks.

S&P Flags Weak Stability Due to Volatile Assets

S&P Global Ratings recently gave Tether a “weak” stability score. The agency cited growing exposure to volatile assets like Bitcoin and gold as the reason for concern. S&P warned that these assets increase the risk of reserve undercollateralization during market stress.

This downgrade has led to debate within the financial community. Former Citi analyst Joseph argued that the rating only considers reserves directly tied to USDT. He noted that Tether also holds additional corporate assets, such as Bitcoin reserves, mining infrastructure, and equity investments, which are not disclosed in the reserve attestation.

Tether’s Profits and Corporate Resilience

Joseph highlighted that Tether earns approximately $10 billion annually from its Treasury holdings, which stand near $120 billion. He said that Tether’s low operating costs and high earnings contribute to strong profitability. This profitability, he claimed, should be factored into assessments of Tether’s solvency risk.

He further stated that, unlike banks that hold a fraction of their assets in liquid form, Tether’s structure relies entirely on reserve transparency without central bank support. He estimated Tether’s corporate equity to be between $50 billion and $100 billion, based on disclosed performance and prior fundraising efforts.

Paolo Ardoino, CEO of Tether, responded to S&P’s downgrade by criticizing legacy rating models. He suggested that traditional frameworks failed to identify risks in several major firms before their collapse and added that Tether remains well-capitalized and transparent in its operations.

Hayes Says USDT Faces Pressure Without Transparency

Hayes said that while Tether does not hold toxic assets, the strategy of increasing exposure to Bitcoin and gold adds volatility to its reserves. He noted that if the Federal Reserve does not cut rates as expected, or if crypto and commodity markets face a downturn, the cushion supporting USDT’s peg could come under stress.

He concluded that increased demand for real-time data from large holders could force Tether to reveal more about its financial health to the public.

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