Stablecoin issuer reported over $1 billion in what it calls operational profit.
AFP via Getty Images
Tether Holdings, the issuer of the tether (USDT) stablecoin, announced on its website last week that it earned more than $1 billion of “operational” profit in Q2, a gain of 30% from the preceding three months. In Q1 Tether reported that its “net” profit was $1.48 billion.
Tacking on 30% would presumably bring “net” profit for the quarter that ended on June 30 to $1.92 billion. But read carefully, Tether did not report “net” profits in its latest release. It only reported “operational” profits, which is normally higher than net profits, because to arrive at net income a company must deduct non-operational expenses, including taxes and interest. Only in this case, Tether’s greatly improved operational profits were apparently nearly $500 million lower than the previous quarter’s net profits.
True to Tether’s penchant for obfuscation, the company did not define operational profit in its announcement nor explain why it was no longer reporting net income as it had in the previous two quarters (in Q4 2022 it said net profit was $700 million.)
In follow up comments to Forbes, Tether said the operational measure is “the recurrent profits generated by the activity of the Group in the second quarter of the year” and “Q1/23 was an exceptionally good quarter from a financial point of view. The $1.5 billion net profit included some extraordinary results like a revaluation of its bitcoin holdings.” Bitcoin’s price appreciated 70% during the first three months of 2023. The company did not respond to follow up questions asking why it changed the reporting metric and how much bitcoin the company had at the beginning of the year.
Tether did say in its BDO-certified attestation that it increased its excess reserves by $850 million in Q2, bringing them to $3.3 billion. The company defines excess reserves as capital not needed for its one-for-one dollar backstop for its USDT tokens or distributed to shareholders.
In a blog post that accompanied its Q2 results, the company attributed the difference between the announced profit and the increase in excess reserves to a $115 million share buyback and “other investments in energy-related initiatives.” Tether also engages in bitcoin mining and has made several investments in other crypto startups.
Tether’s profitability is largely due to its unique business model. Tether mints stablecoins and issues them directly to holders with a promise to secure each dollar-pegged coin with a liquid asset of equal value. Most of this is in the form of super safe U.S. Treasury bills and money market funds but Tether also holds bitcoin and secured loans in its reserves. However, unlike bank deposits, Tether’s cost of funds is nearly zero, since it doesn’t pay any interest on the billions worth of tokens it has minted. So, with interest rates up, it’s conceivable that Tether’s $80-plus billion in reserves are bringing in lots of passive income.
British Virgin Island-registered Tether is owned by four top executives, all of whom are billionaires, according to Forbes’ estimates. According to its latest attestation, Tether had $86.5 billion in assets and $83.2 billion of liabilities on June 30.
