CoinShares Addresses Tether Collapse Concerns Following Hayes Alert

CoinShares' head of research, James Butterfill, has dismissed insolvency fears surrounding Tether, responding to warnings from BitMEX founder Arthur Hayes. Despite concerns that a drop in Tether’s Bitcoin and gold holdings could jeopardize its equity, Butterfill asserts that Tether has a financial cushion. Tether CEO Paolo Ardoino also countered these claims with robust financial data.

Key Takeaways

Tether has over $181 billion in reserves against $174.45 billion in liabilities, leaving a surplus of about $6.78 billion.
CEO Paolo Ardoino states Tether has total assets of roughly $215 billion and excess equity.
Tether generates significant profit from interest on reserve assets, totaling over $10 billion this year.
Industry experts challenge Hayes's critiques of Tether's financial integrity and operational model.

Tether's Financial Stability Explained

On December 5, James Butterfill from CoinShares dismissed doubts regarding Tether's solvency, which were raised by Arthur Hayes, the founder of BitMEX. Hayes claimed that if Tether experienced a 30% drop in its Bitcoin and gold holdings, it could lead to insolvency.

However, Butterfill highlighted that Tether boasts more than $181 billion in reserves, which exceed its liabilities of around $174.45 billion, resulting in a cushion of roughly $6.78 billion.

This reassurance comes amid market fluctuations influenced by developments in Japanese government bonds and disappointing U.S. employment data that reported a loss of 32,000 jobs, diverging from predictions of a gain of 10,000.

Hayes stirred a debate on November 30, alleging that Tether is engaged in a “massive interest rate trade” which might expose it to volatility, primarily due to its $22.8 billion exposure in Bitcoin and gold.

Tether's CEO Defends Against Insolvency Accusations

Tether’s CEO, Paolo Ardoino, quickly countered Hayes's claims with robust financial statistics. He explained that Tether Group has total assets amounting to approximately $215 billion.

Ardoino emphasized that Tether not only has about $7 billion in excess equity but also $23 billion in retained earnings classified as part of Tether Group's equity. Bitcoin and gold holdings, he noted, only account for 12.6% of Tether's total reserves, while over 70% is invested in short-term U.S. Treasuries.

He remarked, “S&P made the same mistake of not considering the additional Group Equity nor the ~$500M in monthly base profits generated by U.S. Treasury yields alone,” implying that those criticizing Tether either miscalculated or intended to benefit competitors.

The company has accumulated more than $10 billion in profit this year through interest income from its reserve assets, making it a highly efficient cash-generating entity with approximately 150 employees.

This rebuttal follows S&P Global's downgrade of USDT’s peg-stability rating from 4 to 5 on November 26, which cited increased exposure to “high-risk” assets and “persistent gaps in disclosure.” In response, Ardoino boldly stated, “We wear your loathing with pride,” positioning Tether as “the first overcapitalized company in the financial industry, with no toxic reserves.”

The downgrade could have significant repercussions under the MiCA regulations, which forbid the use of USDT on EU exchanges with a rating of “5,” potentially driving institutional liquidity toward competitors like Circle’s USDC.

Industry Experts Weigh In on Hayes's Critique

Joseph Ayoub, a former digital asset research leader at Citi, criticized Hayes for not recognizing essential differences between Tether’s disclosed reserves and its total holdings. He explained that Tether operates with a separate equity balance sheet consisting of its mining operations and corporate reserves that aren't disclosed as part of their “matching philosophy” for reserves.

“Tether isn’t going insolvent; quite the opposite; they own a money-printing machine,” Ayoub concluded, pointing to the company’s approximately $120 billion in interest-earning Treasuries, which have provided roughly 4% returns since 2023.

While banks typically operate with lower fractional reserves of 5-15% in liquid assets, Tether’s structure is overcollateralized. Traditional banks enjoy central bank support, which Tether lacks.

Hunter Horsley, CEO of Bitwise Invest, remarked that Tether’s setup is “better than fractional banking reserves,” while CryptoQuant CEO Ki Young Ju minimized Hayes’s warnings, suggesting they stem from trading position management.

Izabella Kaminska, a former editor at FT Alphaville, provided a deeper analysis, suggesting Tether’s robust equity buffer and retained earnings effectively create a capital structure similar to the banking model advocated by academic Anat Admati, emphasizing substantial equity buffers, reduced leverage, and minimal maturity mismatches.

Kaminska observed that if Tether’s depositors choose to redeem directly in gold during turbulent times, gold serves as a “natural last-resort funding asset,” filling the gap typically supported by central banks.

This ongoing discussion unfolds as Tether broadens its operations beyond stablecoin issuance into commodity trade lending, having allocated approximately $1.5 billion in credit across sectors like oil, cotton, and wheat.

In its Q3 attestation, Tether reported that USDT issuance rose by over $17 billion during that quarter, pushing the circulating supply above $174 billion, with the October total exceeding $183 billion.