Where does Tether get its revenues?
Over the years, the stablecoin claims to have made redemptions worth billions of dollars. At the same time, it has made investments and loans worth millions of dollars to crypto ventures on the side. It has 42 employees, per LinkedIn.
Where does it get the cash to manage these business activities?
The company’s financials are a black box. Very little is known about the source of revenues for the world’s biggest stablecoin. Attempts to piece together narratives about the state of its finances have either come up short or hit a dead end.
Why Are Tether’s Revenues Important?
Most news media attention on Tether is focused on the adequacy of reserves backing its stablecoin. This is the case even though the stablecoin, unlike Bitcoin and Ethereum, is issued by a for-profit entity. Revenues should be an important part of business operations for a stablecoin that is responsible for some of the biggest numbers associated with crypto.
Consider Tether’s current circulating supply of 66.2 billion tokens. That figure must mean that it has $66.2 billion stacked away in banks and other financial institutions as reserves.
Or the stablecoin’s peak market capitalization in 2021 of more than $83 billion. That’s a figure associated with large market cap companies in public markets. In a fledgling ecosystem starved of liquidity and funding, Tether seems to be a behemoth that towers other digital assets.
A Systemically Important Stablecoin
The stablecoin is also a systemically important part of the cryptocurrency ecosystem because it greases more than half of all transactions occurring within its confines and enables coins on different chains to trade against each other. What’s more, it is among the very few cryptocurrencies with fiat touchpoints. Any problem in Tether’s financials will ricochet across crypto’s plumbing and spill over into mainstream finance.
Tether’s revenues from its business activities determine the composition of its reserves – a necessary component for its stablecoin to function. For example, investments in Treasuries and commercial paper translate to different earnings in different timeframes.
Given the swirl of questions about the integrity of Tether’s reserves, robust revenues from investments and other sources could also plug potential shortfalls in them.
Where Does Tether Get Its Revenues?
Based on public pronouncements by the company’s executives and research, Tether seems to have three channels to bring in cash: interest income from securities in its reserve holdings, investments and loans to other projects in the cryptocurrency ecosystem, and the issue and redemption of its stablecoin USDT.
It is impossible to arrive at or estimate figures for all three sources. What’s more, the numbers don’t add up in some cases.
For the first two channels, Tether’s reserves attestations might provide a hint. But they are snapshots of its investments and not audits. Snapshots can be manipulated through transfers to show the required number of reserves at the time of attestation.
The company also refuses to detail the contents of 17.5% (as of this writing) of its reserves that consist of secured loans, corporate bonds and funds, and investments in other digital tokens. This is important because each of these component throws off revenue in the form of interest or yield income that, considering the total reserve figure of $66.2 billion, should add up to significant cash.
For example, Tether is supposed to have made a loan of roughly $1 billion to bankrupt lending firm Celsius on which the latter was paying roughly 5 to 6 percent interest. It also led an investing round in Celsius.
The business terms of both relationships are unclear. Did Tether get CEL tokens as part of its investment? [That seems to be the norm in most crypto funding rounds]. If yes, the skyrocketing price of those tokens in crypto markets in 2021 must have been a windfall for Tether’s bottom line.
Issuing and Redeeming Tether
Then there’s what might be conceivably Tether’s biggest source of revenues: the issue and redemption of its stablecoin USDT. The stablecoin charges 10 basis points to issue and redeem Tethers. This means you’d have to pay $1.1 to buy a dollar’s worth of Tether.
As I have written earlier, there are very few venues for customers to redeem Tethers. The preferred method to exit trades that involve Tether is to use Bitcoin or Ethereum, coins with the highest liquidity in crypto markets. That means the revenue accruing to the stablecoin from redemptions is not much.
Issuing Tether might be a more profitable venture for the company. According to estimates by online publication Protos, Tether has distributed $108.5 billion in USDT to various entities between 2014 and 2021.
Bankrupt exchange FTX’s sister entity Alameda Research is supposed to have purchased $36.7 billion worth of Tether in 2021, meaning it should have paid, at least, $36.7 billion to the company for the coins.
Except it would have been difficult for Alameda to pony up that kind of cash. At the end of 2021, the research firm had $1 billion worth of crypto assets under management and was trading $1 billion to $10 billion worth of crypto assets daily. In a recent bankruptcy filing, the trading firm, along with FTX, was supposed to have reported losses of $3.7 billion to tax authorities in 2021.
Tether Revenue Numbers
To be sure, all figures in crypto must be taken with a generous grain of salt since most tokens are worthless. They circulate within their own ecosystem and rarely have fiat touchpoints. There’s also the fact that a large percentage of crypto trading volumes, by some estimates as much as 95%, is fake.
In his recent testimony to the US Senate, actor Ben McKenzie stated that former FTX CEO Sam Bankman-Fried told him that, despite market valuations running into trillions of dollars, there was actually very little real money – in terms of revenues and fiat currencies – in the cryptocurrency ecosystem. Last July, SBF estimated that there was $200 billion left in cryptocurrencies. The question is how much of it goes to Tether?