BREAKINGVIEWS-Stablecoin giant is crypto’s fragile foundation

By Liam Proud

LONDON, Feb 20 (Reuters Breakingviews) - Tether has so far proved to be resilient in its short life. Despite regulatory slapdowns, repeated cryptocurrency crashes, cybercrime and the 2022 collapse of a rival, the company that issues the world’s largest stablecoin has survived and thrived. Its USDT token, which has grown to $184 billion, dominates the global market for dollar-pegged digital currencies.

That durability is surprising. Despite occasional hints of progress, Tether CEO Paolo Ardoino and Chair Giancarlo Devasini still do not publish full audits of the financial assets backing USDT. The group is based in El Salvador, which is hardly known for its tough approach to financial regulation.

More pressingly, its most recent quarterly report shows key metrics of financial risk heading in the wrong direction, just as the value of bitcoin and other digital assets is sliding. Despite attempts by U.S. regulators to bring dollar stablecoins back onshore, USDT remains more than twice as large as its nearest rival, Circle Internet’s CRCL.N USDC. If Tether’s solid streak ends, the consequences would be felt far beyond the world of cryptocurrencies.

Tether International, which issues the USDT token, is probably one of the world’s most lucrative companies on a per-employee basis. With about 300 members of staff, judging from LinkedIn, it paid out $10.9 billion in dividends in 2025. Only 16 public companies in the world sent more cash to their shareholders last year, according to an LSEG database, and those are all giant global blue chips like Apple AAPL.O, Microsoft MSFT.O and Exxon Mobil XOM.N.

Tether’s profits come from managing the assets that back USDT. Users give Tether a dollar in return for a digital token that’s useful for trading crypto or sending money across borders. Tether takes that dollar and invests it in so-called reserve assets, meaning U.S. Treasury bills and other financial instruments. It keeps all the interest payments and investment profits on those reserve assets, while incurring relatively few operating costs. If USDT holders want to swap their tokens back into cash, Tether sells some investments and redeems the coins, thereby tethering USDT’s value to the greenback.

All this works as long as users believe the tokens are as good as a dollar. The company therefore makes sure that its reserve assets exceed the value of its token liabilities. This buffer, akin to a bank’s capital, bolsters confidence that Tether could meet any redemption requests in a panic.

However, this equity cushion is shrinking. It declined from $7.1 billion to around $6.3 billion between the end of 2024 and the end of 2025, even as the volume of USDT outstanding surged. As a percentage of assets, equity was 3.3% on December 31 last year, down from 4.9% a year earlier and 5.6% at the end of 2023. In other words, if Tether’s assets lose more than 3.3% of their value, it would no longer have sufficient reserves to redeem all the tokens at their dollar peg.

This slender cushion might be tolerable if Tether had parked all its reserve assets in short-term Treasury bills, which carry zero credit risk and can be sold quickly at face value. But such super-safe assets account for a dwindling proportion of the pile. Cash-like reserves – including repurchase agreements, bank deposits and U.S. Treasury bills – were 76% of total assets in December 2025, compared with a recent historical range around 80% to 85%. The flipside is that riskier investments like bitcoin, gold and secured loans now make up 24% of the total, compared with around 15% to 20% previously.

The overall picture, then, is of a bigger pile of liabilities supported by a slimmer equity buffer and matched with a riskier bundle of assets. One urgent question is what kind of market swings it would take to burn through Tether’s $6.3 billion margin of safety. The 25% drop in the value of bitcoin this year suggests Tether’s stockpile of the crypto token is down by roughly $2 billion. But that’s been offset by a rise in the gold price, which despite a recent wobble is still up almost 16% in 2026. The real danger for Tether is therefore if gold and bitcoin plunge simultaneously, or if the group suffers losses on its opaque $17 billion book of secured loans.

The company is showing no visible signs of strain. USDT is trading very close to a dollar on secondary markets. Redemptions don’t seem to be material. And Tether has other levers it can pull if holders lose confidence. It could hold on to interest payments and investment profits rather than paying them out as dividends, using them instead to boost its equity buffer. That appears to be what Ardoino and Devasini did in the final quarter of 2025.

Perhaps more importantly, the wider Tether family could help out. As of December 2025, Tether claimed it had a greater than $20 billion portfolio of investments in artificial intelligence, energy, media and other companies. Those are distinct from the assets backing USDT, meaning they could conceivably serve as a back-up reserve of sorts. Still, there’s a lack of transparency over how liquid those investments are.

In any case, the possible consequences of a Tether meltdown are so severe that the scenario is worth thinking through. USDT is central to the crypto ecosystem, serving as a stand-in for dollars on many trading pairs. So if the stablecoin lost its peg, many widely referenced prices for tokens like bitcoin may cease to make sense. USDT is such a key pillar for crypto that it’s even possible to imagine major exchanges like Binance helping to rescue it in a crisis, effectively making it too big to fail.

A selloff would have broader consequences, though. The first thing Tether would probably offload to meet mass redemptions are U.S. Treasury bonds. The company said it had $122 billion of Uncle Sam’s debt on December 31, more than Germany. The International Monetary Fund, Bank for International Settlements and Treasury Borrowing Advisory Committee have all warned that runs on stablecoins could lead to firesales of Treasury bills, in turn potentially hurting short-term funding markets that serve as core financial sector plumbing. For all the efforts to tame the wild west of digital currencies, crypto’s edifice is built on a fragile foundation.

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