Tether’s controversial loans make it the top digital asset lender

Tether’s controversial ‘secured loans’ make it the top digital asset lender, but its status as the world’s top stablecoin issuer could soon face a serious challenge.

A new report by digital asset lender/custodian Galaxy Digital shines a light on the sometimes controversial practice of borrowing and lending by digital asset firms. Galaxy notes that the total crypto lending market was worth $36.5 billion at the end of Q4 2024, well off its $64.4 billion peak in Q4 2021.

That last period preceded 2022’s raft of crypto bankruptcies and frauds, leading to the demise of lenders like Genesis, Voyager and BlockFi and contributing to the onset of ‘crypto winter.’ That said, the 2024 number represents a 157% improvement from the $14.2 billion in digital asset loans at the end of Q3 2023, the low-water mark of the downturn.

So-called centralized finance (CeFi) lenders—OTC brokers, prime brokerages and on-chain private credit—had $11.2 billion in loans outstanding at the end of Q4 2024. That’s a pale shadow of their 2022 peak of $34.8 billion.

Decentralized finance (DeFi) platforms—lending applications, ‘collateral debt position stablecoins’ (aka stables backed by crypto rather than fiat), and decentralized exchanges—accounted for the rest. Lending applications alone accounted for loans totaling $19.1 billion in Q4 2024, a rise of 959% from their crypto winter nadir, filling the void left by the CeFi bankruptcies.

Just three companies—Tether, Galaxy and Ledn—claimed $9.9 billion (88.6%) of the CeFi total. Tether, the issuer of the world’s largest stablecoin by market cap (USDT), holds the dominant slice of that pie with $8.2 billion in outstanding loans at the end of last year.

For years now, Tether’s controversial ‘secured loans’ to parties unknown have raised questions about who these parties are, what terms/conditions Tether imposes on borrowers, what collateral borrowers have to provide and what might happen should these borrowers default on their loans.

Are these borrowers market makers? High net worth individuals who, for some reason, can’t borrow from banks? Do sister companies like Bitfinex or other ‘friends of Tether’ who receive USDT for free use it to pump the price of certain tokens, then dump said tokens at a profit and return the USDT to Tether along with a cut of the proceeds?

The mid-2022 collapse of the Celsius Network exposed the fact that it had borrowed over $2 billion from Tether, using Celsius customers’ BTC tokens as collateral. This exposed the lie behind Tether’s previous claims that it only issued USDT in exchange for U.S. dollars.

As scrutiny mounted during the late 2022 crypto crash, Tether pledged to eliminate the then-$6.1 billion in loans on its balance sheet. But just a year later, these loans were ticking back up again, and, as previously stated, now total $8.2 billion.

Following the Galaxy report’s release, Tether told Bloomberg that all its loans are “widely overcollateralized” in BTC. The loans are “typically short-term and subject to rigorous risk management, including provisions for margin and liquidation.” As with everything Tether, we’ll just have to take the company’s word on that.

Fizen helps bridge the gap

Tether claims to have made over $13 billion in profits last year and now self-identifies as “the largest company in the digital asset industry.” But as stated above, we only have Tether’s word on that, as the company has never submitted its accounts to an independent audit despite a decade’s worth of promises to do so.

Tether clearly makes some money, as it continues to buy stakes in other companies. The latest deal is a new ‘strategic investment’ in Fizen Limited, a fintech firm focused on digital payments and self-custody crypto wallets.

Tether CEO Paolo Ardoino said the Hong Kong-based Fizen “helps to bridge the gap between self-custody and digital payments, empowering users with greater financial independence while reinforcing our leadership as the most widely used stablecoin globally.”

Fizen founder/CEO Leo Vu said Fizen’s goal was to make stablecoins like USDT “an intuitive part of daily transactions, allowing users to pay seamlessly without even realizing they are using blockchain technology.”

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Ocean size

Tether recently boosted its stake in Chinese block reward mining outfit Bitdeer (NASDAQ: BTDR) to 22.8%, but it has had its hand in mining operations for a few years now. In September 2023, Tether made a ‘strategic investment’ in Northern Data Group, a controversial German firm that now wants to scrap its mining ops in favor of becoming a “pure-play AI Solutions business.”

Tether claimed to have mining operations in Uruguay, Paraguay and El Salvador while also promoting a ‘decentralized mining’ operation based on a “serverless P2P network” and/or “advanced Internet of Things platform” it calls MOS.

On April 15, Tether announced it would “deploy both existing and future hash rate on OCEAN,” a decentralized BTC mining pool founded by BTC Core developer Luke Dashjr. OCEAN is a mining minnow, with a hash rate hovering around 6.5 EH/s compared to 270 EH/s by the leading pool, Foundry USA.

OCEAN, previously known as Eligius, has also received financial backing from Jack Dorsey, founder of Twitter and current chairman of payment processing company Block (NASDAQ: SQ). A year ago, Ocean established a new hub in El Salvador, which Tether happens to call home.

Tether says it will deploy Ocean’s DATUM Gateway software “across its mining operations worldwide, including in rural and underserved areas such as parts of Africa.” Tether’s Ardoino said the Ocean deal “aligns with both our mining investments and our broader mission to fortify Bitcoin against centralizing forces.”

Tether’s announcement cited Giw Zanganeh (although Tether’s release spelt his name as ‘Giv’) as the company’s VP of Mining & Energy. Zanganeh is/was CEO of Lugano, Switzerland-based ACME Swisstech SA, whose major claim to fame appears to be having installed a mining setup for a local food production company that later renamed their panettone cakes ‘Banettone,’ you know because Bitcoin starts with a ‘B.’

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You get a stablecoin! And you get a stablecoin! And you…

The two bills currently progressing in both the House of Representatives (STABLE) and the Senate (GENIUS) would allow private companies to issue their own stablecoins. Likely candidates include Wall Street financial giants and digital commerce platforms that secure the necessary financial permits.

Ran Goldi, senior VP of payments at digital asset custodian Fireblocks, told CoinDesk that banks will definitely issue their own stablecoins. Goldi expects as many as 50 new stablecoins to launch before year’s end, assuming Congress can get harmonized stablecoin legislation onto President Donald Trump’s desk by this summer as currently envisioned.

Goldi suggested that Wall Street heavies like JPMorgan (NASDAQ: JPM), Citi (NASDAQ: C) and Morgan Stanley (NASDAQ: MS) would build their stablecoin tech in-house, while ‘tier-2’ banks “will want to use some hosted tech provider.” (U.K. digital bankers Revolut previously announced plans to launch their own stablecoin but ultimately chose to team up with Ripple Labs on its RLUSD stablecoin.)

Banks aren’t known for being particularly fleet of foot, so their stablecoin plans—particularly for those choosing to build their tech—might not come online until 2026. But once they do, expect them to bring their significant powers of scale to bear against the stablecoin incumbents.

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Tether planning U.S. stablecoin platform?

Tether appears in no hurry to conform to the U.S. legislative requirements for U.S.-approved stablecoin issuers to keep all reserves in cash, T-bills and their equivalents, rather than Tether’s current mix of T-bills, precious metals, BTC and those ‘secured loans.’ But Tether has suggested it might issue a new U.S.-focused ‘payment stablecoin’ to allow USDT to continue down its crooked path.

However, Ardoino recently said Tether was in no great hurry to implement its U.S. stable plans, preferring to “take a bit of time to really dive deep into the market but we have some ideas on how we can create a great product focused on digital payments.” Ardoino also suggested that this new stable would be more of a settlement tool for large institutions rather than a retail-focused product.

Perhaps, but some suspect Tether’s plans are a little more involved than Ardoino’s letting on. On a recent episode of the Tokenized podcast, crypto author Noelle Acheson suggested that Tether could be looking at setting up a stablecoin-issuing platform for U.S. non-crypto companies looking to dip their toes into this pool sooner rather than later and without the steep learning curve.

There’s just one problem with this plan. Despite its belated efforts at cooperating with law enforcement agencies, Tether has some reputational problems. Rarely does a week go by without some report citing USDT’s role in this or that transnational criminal activity. (Here’s this week’s.) This is the kind of guilt-by-association vibe most tradfi firms don’t need.

Tether may believe that its links to Wall Street firm Cantor Fitzgerald (NASDAQ: ZCFITX)—which allegedly custodies Tether’s billions in Treasury bills—will help smooth over its rough edges. But Cantor founder Howard Lutnick, who now serves as U.S. Commerce Secretary and remains a staunch Tether defender/promoter, may provide more drag than lift.

On April 1, Politico wrote about Lutnick’s White House presence in an article that bore the headline quote: ‘I don’t know anyone that isn’t pissed off at him.’ On April 15, Politico reported that the administration’s erratic tariff strategy was leaving Lutnick’s former colleagues with a bad taste in their mouths. According to an unidentified White House official: “Every Wall Streeter has complained about Lutnick.” Will Tether join that complaining chorus if its Wall Street charm offensive finds no takers?

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