Arthur Hayes Warns Tether Could Face Solvency Test On Asset Downturn

TLDR

Table of Contents

Tether holds $13B in gold and nearly $10B in Bitcoin as hard assets
Hayes said a 30% drop in those assets could wipe out Tether’s equity
S&P gave Tether a “weak” stability score amid growing reserve risks
Tether reported $181B in total assets, mostly in Treasury bills

Tether, the issuer of the world’s largest stablecoin USDT, is under renewed scrutiny after crypto figure Arthur Hayes warned of potential solvency risks. Hayes pointed to Tether’s growing exposure to gold and Bitcoin—assets that have seen sharp volatility. With over $23 billion tied to these holdings, he cautioned that a downturn could threaten the company’s financial buffer, raising questions about the stability of its massive reserve base.

Hayes Raises Concerns Over Tether’s Reserve Strategy

Arthur Hayes, BitMEX co-founder, warned that Tether could be at risk of insolvency if the value of its hard assets drops. In a recent post on X, Hayes stated that Tether is making a large interest-rate bet by increasing its exposure to gold and Bitcoin.

Tether has allocated around $13 billion to gold and another $10 billion to Bitcoin. Hayes warned that if these assets fall by 30%, it could erase Tether’s equity cushion. This could leave its stablecoin, USDT, vulnerable and, in theory, insolvent.

Crypto Market Volatility Increases Pressure

Over the past 30 days, Bitcoin has fallen by 17%, and Ethereum has dropped by 22%, wiping nearly $1 trillion from the crypto market. Bitcoin recovered slightly in the last week of November, reaching $91,500, but the volatility remains a concern.

Tether is the issuer of the largest stablecoin, with a circulating supply of 184.6 billion USDT. It has long claimed to maintain full backing through highly liquid assets, mostly U.S. Treasuries and cash equivalents.

S&P Downgrades Tether’s Reserve Stability

Earlier this month, S&P Global Ratings gave Tether a “weak” score for reserve stability. The agency pointed to its growing allocation toward higher-risk investments like gold, Bitcoin, and venture holdings.

Tether responded by calling S&P’s rating system outdated. Chief executive Paolo Ardoino said Tether holds no “toxic” assets and remains overcapitalized. He added that USDT’s consistent market demand shows user trust in the company’s financial model.

Experts Divided on Tether’s True Risk Profile

Joseph, a former Citigroup analyst, said Tether’s public reserve disclosures only show the backing for USDT, not its full balance sheet. He mentioned that corporate equity, Bitcoin mining assets, and venture stakes are kept outside of those reports.

Despite the concerns, Joseph said Tether is highly profitable. Its U.S. Treasury holdings of around $120 billion have generated nearly $10 billion in profit since 2023. He estimated the company’s equity value could be between $50 billion and $100 billion.

He also compared Tether to traditional banks, which usually hold only 5% to 15% of deposits in liquid form. However, unlike banks, Tether operates without central bank protection and must rely solely on its reserves and income to manage risk.