Tether reports profits, brings USDT (and secrecy) to BTC

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Tether posted record ‘profits’ in 2024 but faces an uncertain future in both Europe and America as regulators and politicians impose rules the market-leading stablecoin issuer refuses to follow.

• Look ma, profits!
• Lutnick plays coy with Commerce Dems’ Tether questions
• USDT booted from more EU-facing exchanges
• Tether brings USDT to BTC and Lightning Network
• Tether Tower in El Salvador to be 70 stories high

Last week, Tether released its latest quarterly ‘attestation’ of the reserve assets backing the $136.6 billion of its USDT stablecoin issued as of December 31, 2024. That sum represents a $17.2 billion rise since Tether’s Q3 attestation, reflecting the surge in ‘crypto’ markets following Donald Trump’s election as U.S. president last November. As of January 3, that total has grown to $139.5 billion.

As ever, the usual caveats apply: an attestation is not a proper audit, a procedure to which Tether categorically refuses to submit. The attestation is merely a one-day snapshot of the reality portrayed in documents Tether deigns to share with BDO Italia, which makes no representations regarding the reality on any day before or after December 31.

Tether claims to have enjoyed over $13.7 billion in ‘net equity’ in the 12 months ending December 31, including nearly $7.1 billion in reserves over and above the ones backing issued USDT. That’s more than twice the sum reported in the company’s December 31, 2023 attestation.

Tether’s profits stem from its allegedly massive holdings of U.S. Treasury bills, which hit $94.5 billion as of December 31. Throw in overnight reverse repos and other Treasury-adjacent investments, and Tether claims $113 billion in ‘direct and indirect’ T-bill exposure.

Tether’s T-bills are allegedly custodied by Wall Street financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX), whose CEO Howard Lutnick has claimed “I hold their Treasuries.” Last week, Lutnick—Trump’s nominee for Commerce secretary—told his Senate confirmation hearing that reports of him or Cantor ‘owning’ a piece of Tether were somewhat incorrect, offering instead the revelation that Cantor “owns a convertible bond with Tether.” (More on this below.)

Lutnick also stated that all U.S. dollar-denominated stables “should be audited, should be completely backed by U.S. Treasuries 100%.” And yet, his client Tether’s attestations continue to show a range of non-Treasury assets, including $8.2 billion in ‘secured loans’ to borrowers that may include related parties. 

Tether’s outstanding loans have grown by $1.5 billion since the Q3 attestation and are now nearly twice the sum that Tether reported at the end of 2023. For the record, it’s been over two years since Tether pledged to eliminate these loans from its balance sheet, and yet the company continues to move in the opposite direction.

Tether also reported $5.3 billion in ‘precious metals,’ a modest ~$300 million boost since Q3, while the value of Tether’s BTC tokens jumped by $3 billion to $7.85 billion thanks to the post-election crypto surge. Tether’s ‘other investments’ grew by around ~$300 million to just under $4 billion.

Lutnick bobs, weaves, ducks Congress Dems’ Tether questions

On February 3, the Democratic members of the Senate Commerce Committee released a compilation of answers Lutnick provided to written questions submitted following last week’s hearing. A significant number of these questions involved Cantor/Lutnick’s Tether ties, but we’ll limit our coverage to the more juicy ones. (Note: no Republicans asked Lutnick any digital asset questions whatsoever.)

Lutnick revealed that Cantor made its “convertible debt investment” in Tether’s holding company in April 2024. Asked about the size of this investment, Lutnick said only that it’s “not a matter of public record.” Asked why he didn’t reveal this debt instrument during his initial committee staff interview, Lutnick said he’d been asked if Cantor owned 5% of Tether, and “the answer is no.”

Are Tether’s claims of every USDT being backed 1:1 with the U.S. dollar accurate? Cantor “is not conducting continuous diligence on Tether’s financial statements, but I believe my [July 2024 statements that Tether “has every penny”] were accurate when made.”

Will Lutnick call on Tether to submit to an independent audit within three months? Once confirmed, “I will faithfully execute my duties consistent with applicable government ethics laws and regulations and based on the guidance of Department of Commerce Ethics Department officials.”

How accurate is the November Wall Street Journal (WSJ) report that said Tether founder Giancarlo Devasini told associates that Lutnick had promised to use his political clout to defuse threats facing Tether? “I do not know what Mr. Devasini told business associates. I have never suggested to anyone that I would do anything improper with respect to Tether.”

Did Lutnick ever tell Devasini that he’d undermine proposed legislation or other regulatory efforts aimed at Tether? “I have repeatedly conveyed my belief that the U.S. Congress should be careful not to undermine dollar hegemony on blockchain through legislation.”

Would Lutnick commit to not interfering in any criminal probe of Tether by the Justice/Treasury departments? “I commit to fulfilling my duties as the Secretary of Commerce consistent with government ethics laws and regulations, to the extent applicable.”

Lutnick was also asked if, given his Tether ties, he’d recuse himself from sitting on Trump’s new Working Group on Digital Asset Markets (aka ‘crypto council’). “I will follow applicable government ethics laws and regulations based on guidance from the Ethics Office of the Department of Commerce.”

USDT an endangered species in Europe

Tether’s CEO Paolo Ardoino has said nothing publicly about Lutnick’s suggestion that U.S. stablecoin rules should include mandatory third-party audits and reserves comprised exclusively of T-bills. Legislation proposed during the last Congress and expected to be reintroduced in the current session will almost certainly compel Tether to either comply with these requirements or face delisting by U.S. digital asset exchanges.

Tether is already suffering that fate in Europe following the passage of the European Union’s Markets in Crypto-Assets (MiCA) regulations. MiCA requires ‘significant’ stablecoins such as USDT to hold the bulk of their reserves in cash in EU banks, something Ardoino claims would leave Tether vulnerable to bank failures.

The Coinbase (NASDAQ: COIN) exchange has delisted USDT in Europe, while rivals Binance and OKX have limited the ‘availability’ of USDT for European Economic Area (EEA) customers. Last week saw both Crypto.com and Kraken join the USDT delisting party, prohibiting new purchases as of January 31 and requiring customers to convert the tokens to MiCA-compliant tokens by March 31.

A Tether spokesperson claimed to be “disappointed” by the exchanges’ “rushed actions” while warning that EU customers will face “further risk” from the aforementioned bank failure concerns. Tether also claims to be ‘finalizing’ its European strategy, which includes investments in MiCA-compliant stable issuers Quantoz and StablR.

Tether & Lightning

Last week’s reports of a crackdown on a major EU-based money laundering ring were swiftly followed by a Tether statement taking credit for the freezing of $26.4 million in assets linked to the gang. The freezing was done via the T3 Financial Crime Unit (T3 FCU), a joint initiative of Tether, the Tron blockchain, and blockchain analysts TRM Labs.

T3 FCU launched last year as both Tether and Tron tried to counter a flood of reports linking USDT on Tron to serious criminal activities around the globe. While more USDT ($77 billion) currently resides on the Ethereum network, criminals ranging from terror groups to pig butchering scams appear to overwhelmingly prefer USDT on Tron.

Tether’s Ardoino was quoted saying the EU freezing “demonstrates Tether’s commitment to clamping down on illicit actors and its zero-tolerance approach towards money laundering and financial crime.” This commitment, it should be noted, has taken on new urgency amid mainstream media reports of unsealed indictments awaiting Tether execs should they dare set foot on U.S. soil.

So it’s perhaps an odd time for Tether to announce that it was integrating USDT on both the BTC base layer as well as the Lightning Network, the ‘Layer 2’ network that claims to alleviate BTC’s transaction bottleneck and high fees. The integration is supported by Taproot Assets, “a new Taproot-powered protocol” that supports tokenization of non-native assets like USDT on BTC.

Ardoino said bringing USDT to BTC/Lightning offers “practical solutions for remittances, payments, and other financial applications that demand both speed and reliability.” That last comment will amuse many with actual firsthand experience with Lightning, given its demonstrated unreliability and security issues that threaten users with the possible loss of their digital assets.

But there’s also the fact that when Lightning transactions do work, they offer users more privacy than BTC base layer transactions. Taproot was similarly promoted as a privacy-enhancing feature. Taken together, the new USDT on BTC/Lightning effort appears to be recidivism of the kind Tether claims to have put behind it as it seeks to shed its lawless image.

It was only last June that the European Union Innovation Hub for Internal Security slammed Layer 2 applications such as Lightning for causing “additional problems for law enforcement investigations” into suspicious transactions.

So while Tether talks up its occasional compliance with law enforcement agencies, it’s creating new ways for bad actors to mask the flow of their ill-gotten gains. With Tether being booted from Europe and facing U.S. regulatory hurdles it can’t/won’t clear, perhaps serving as an emerging markets’ crime coin is the best option it has left.

It remains to be seen how eagerly the wider BTC community—which is trying to portray itself as all grown up and respectable in order to convince America to make BTC part of a digital asset stockpile/reserve—will welcome this blast from its crypto criminal past.

Towering infernal

Last week, Ardoino offered more details on Tether’s plan to build a massive ‘tower’ in El Salvador’s capital San Salvador. The country’s President Nayib Bukele teased the tower project last month, but Ardoino offered further details at the PlanB Forum, a Spanish-language BTC shindig in El Salvador thrown by Tether and its sister company Bitfinex.

Ardoino said the tower plans were still under discussion, but it could rise “up to 70 floors” high, which would make it the tallest in the country. The tower’s price tag remains unclear, with reports estimating its budget at “hundreds of millions.”

Once built, Tether will call it home, along with some other tech firms “that want to follow in our footsteps.” This presumably includes those in which Tether has been investing some of its allegedly surplus billions, such as the right-wing video platform Rumble.

Tether recently relocated its corporate headquarters from the British Virgin Islands to El Salvador, where Ardoino and other Tether execs have paid millions for new cribs. Ardoino went one better, taking out Salvadoran citizenship, based on his belief that El Salvador is “the country of the future” and “one of the few countries that have really understood the potential of digital assets.”

Too bad that potential doesn’t include serving as electronic cash. On January 29, El Salvador’s Congress rushed through changes to its marquee crypto legislation, removing the legal requirement for local merchants to accept BTC as payment.

Also, tax payments can no longer be paid in BTC, and the government-sponsored Chivo digital wallet, which few Salvadorans ever used after cashing out the $30 in free BTC that came with it, will be phased out.

The changes were reportedly a key stipulation of the International Monetary Fund (IMF), from which Bukele desperately wanted a $1.4 billion loan. The IMF always viewed Bukele’s unpopular BTC experiment as too risky for a country with such shaky finances.

From the start, international remittances were promoted as BTC’s killer app, but after a brief surge in 2021, expat Salvadorans’ BTC-based remittances as a share of overall remittances tumbled. That share hit an all-time low this December, so this is more of a mercy killing than a drive-by shooting.

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