Author | Produced by Terry | Vernacular Blockchain (ID: hellobtc)

As the leader in the stablecoin market, USDT has always been questioned, but it has remained in first place amidst rounds of FUD crises.

Last month, Paolo Ardoino, chief technology officer of USDT issuer Tether, revealed that Tether will achieve a profit of US$700 million in the first quarter of 2023 and bring its excess reserves (the amount of reserve funds in excess of the amount of USDT issued) to 16.6 One hundred million U.S. dollars.

01 Tether expands against the trend

Such amazing profitability is not only among the best in the crypto world, but also among the traditional financial listed companies. Let’s take the profitability of A-share listed companies in the same period as an example:

Among the A-share companies that have disclosed their performance in the first quarter of 2023, Wanhua Chemical ranked first with a net profit of approximately 4.053 billion yuan, followed by Guanghui Energy with 3.007 billion yuan, and China Unicom ranked third with 2.266 billion yuan.

Based on US$400 million (approximately 2.8 billion yuan), Tether’s profit in the first quarter of this year has exceeded that of China Unicom, ranking third in the A-share profit list, and is not far away from second place.

According to CoinGecko data, since US regulators shut down Silicon Valley Bank on March 10, USDC net outflows have exceeded US$12 billion, and total circulation has dropped to around US$32 billion, a decrease of about 30%, while those that use USDC as their main reserve DAI and FRAX also suffered significant declines in market share due to their involvement.

BUSD is subject to regulatory pressure and continues to be destroyed, and its circulation continues to decline. In the past 30 days, it has decreased by nearly 2 billion U.S. dollars, which is the most destroyed among all stable coins; while TUSD, which aims to take over BUSD, has only a volume of 2 billion U.S. dollars, which is still a Little players.

The circulation trend of each stable currency, source: CoinGecko

At the same time, the market value of USDT increased by approximately US$11 billion to US$81 billion, and its market value accounted for more than half again, reaching 61% of the total market value of stablecoins on the entire network. It can be said that USDT’s market share advantage has improved after the market turmoil after the first quarter of this year. On the contrary, it continues to expand, and its position as the number one stablecoin becomes increasingly stable.

02 How to make money every day with USDT?

So as a USDT issuer, how can Tether make money and achieve such high profits?

First of all, we need to make it clear that in addition to fixed development and technical support expenses, the marginal cost of Tether’s issuance of USDT is almost zero. The cost of issuing USDT is about the same as that of USD 80 billion. This means that its own operating expenses The changes in terms are relatively negligible.

As for Tether’s USDT issuance fees, service fee income and other basic income, there are two parts:

-Service fee: Not all users can directly go to Tether to exchange USDT and US dollars back and forth. If institutions or individual users need to deposit and withdraw funds on the Tether official website, they need to register, and each account verification requires a fixed fee of US$150;

- Handling fee: After successful verification, you can deposit legal currency. The minimum deposit on the official website is 100,000 U.S. dollars each time. When the user goes to Tether to exchange the USDT in his hand for the U.S. dollar operation, a 0.1% fee is charged each time. fee;

However, since the demand for people to directly exchange Tether for US dollars is not high, this part of the basic income can almost be ignored. So how does Tether earn the bulk of its income?

  • Significant interest income at zero cost

As for the specific profit item, Tether's "formal" profit method, the main income segment is similar to the business of traditional banks, earning stable income through the interest rate difference of deposit and loan business:

The process of Tether issuing USDT and distributing it to the market to allow USDT to enter circulation is essentially the process of crypto users using U.S. dollars to "purchase" USDT - Tether's issuance of USD 10 billion in USDT means that crypto users have deposited USDT into Tether. 10 billion US dollars to obtain these 10 billion US dollars in USDT.

After Tether obtains these 10 billion US dollars, it does not need to pay interest to the corresponding users. In other words, Tether can obtain real US dollar funds from crypto users at zero cost by issuing USDT.

Therefore, the more USDT issued by Tether, the more liquidity it has on hand. So the current scale of 80 billion USDT means that Tether has $80 billion in liquidity obtained at zero cost. Just like any bank, if the "deposit interest rate" interest rate is zero, then the income from the loan business is net income, which is undoubtedly extremely substantial.

Of course, after years of FUD and doubt, the transparency of USDT reserves is already very high, and it is unlikely that it will make profits through lending or investment businesses through incomplete reserves like banks:

According to Tether's disclosure, it reduced its commercial paper risk to zero in 2022 and is now backed by more than 81% cash and cash equivalents, including more than $39 billion in direct exposure to U.S. Treasuries, money market funds, reverse repurchase agreements, and cash and bank deposits.

Thanks to the huge base of US$80 billion, even if Tether allocates all its reserves into cash demand deposits or invests in treasury bonds, the current interest rate of about 4% means that it will earn about US$3.2 billion per year (almost US$700 million in the first quarter, You must know that the scale of USDT at the beginning of the year is less than 70 billion US dollars), this is truly a risk-free and stable return.

  • The “windfall” of intermittent FUD

In addition, Tether also has an "informal" way to make profits, mainly thanks to media such as Bloomberg, which are "old friends" of Tether and USDT:

Bloomberg has been working tirelessly to help USDT improve the transparency of its reserves for many years - issuing articles questioning Tether every now and then, and even triggering a wave of FUD by introducing regulatory pressure.

In this kind of intermittent FUD, almost every time it will lead to the de-anchoring of USDT, and Tether will also announce direct destruction when the de-anchoring is serious. For example, in the FUD in October 2018, USDT was hovering around US$0.98. It is always difficult to regain anchorage.

Tether has reduced the circulation of USDT by 500 million pieces in 10 days, and the specific operation is undoubtedly to use the reserves to buy back USDT in the market, so there is room for profit:

When Tether first issued USDT, 500 million USDT was exchanged for US$500 million, but now it can repurchase 500 million USDT for only US$495 million (based on the average repurchase cost of US$0.99), making a net profit every time. $5 million.

In addition, the crypto market’s own black swan events can also have similar effects. For example, during the Terra/Luna crisis last May, stablecoin FUD panic once spread to Tether:

Initially USDT fell from around US$0.999 to US$0.997, and then even fell sharply to US$0.95. Tether's buyback during this period could not only boost market confidence and help USDT regain its peg, but also be able to eat the price difference, killing two birds with one stone.

Therefore, Tether, a middleman in the stablecoin business, can also make money through unstable stablecoins.

For ordinary crypto users, the USDT chips thrown out at a discount every time during FUD may have regularly contributed a windfall to Tether.

03 Summary

It can be said that Tether is currently almost the most profitable encryption company besides trading platforms (I am afraid that only Binance can stabilize CEX). However, for Web3 projects and encryption companies that are generally operating at a "loss" and selling Token subsidies, In other words, it is even more elusive, which is one of the main reasons why the stablecoin business is so popular.

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