Forbes, a well-known American media, published a report on Tether, the world's largest stablecoin. The report questioned that Tether seems to be continuing to grow, but its profits seem to be declining, and said that the indicators used in its report are inconsistent, maintaining its Consistent style of confusing the public. Let Lian News break it down for you one by one!
The indicators used in each report are different
Tether, the world's largest stablecoin issuer, released its USDT Q2 reserve report (USDT) at the end of July. It announced on its website that its "operational profits" in the second quarter exceeded $1 billion, an increase of 30% from the previous quarter. Its first-quarter report said its "net profits" were $1.48 billion.
Forbes reminds everyone that operating profit is usually higher than net profit because the company must deduct non-operating expenses, including taxes and interest, before net profit is reached. Under such circumstances, the significantly increased profits claimed by Tether are obviously not as much as they appear.
According to Forbes, as is Tether's usual obfuscation, the company did not define operating profit in the announcement, nor did it explain why it no longer reported net profit as it did in the previous two quarters (it said profit was $700 million in the fourth quarter of 2022).
Profits from rising Bitcoin valuation and interest income?
In follow-up comments to Forbes, Tether said that the operating metric is recurring profits generated from group activities in the second quarter of this year, and that from a financial perspective, the first quarter of 2023 was a very good quarter.
The $1.5 billion net profit included some extraordinary results, such as an adjustment in the valuation of its Bitcoin holdings.
In the first three months of 2023, the price of Bitcoin increased by 70%. But Tether did not respond to Forbes’ follow-up questions, including why it changed the reporting metric and how much Bitcoin the company owned at the beginning of the year.
Forbes believes that Tether’s profitability is largely due to its unique business model. Tether mints stablecoins and issues them directly to holders, promising equal value of liquid assets for every dollar-pegged stablecoin. While most of its assets are in the form of safe U.S. Treasury bills and money market funds, Tether also holds Bitcoin in its reserves and secured loans. However, unlike bank deposits, Tether's cost of funding is next to zero because it doesn't pay any interest on the tens of billions worth of tokens it mints. So as interest rates rise, it's conceivable that Tether's $80 billion-plus reserves are generating a lot of passive income.
Actual calculation and compilation of chain news
Indicators vary from quarter to quarter
Chain News also re-read the report published by Tether and found that the indicators used are different each quarter, from Profits in the fourth quarter of 2022, to Net profits in the first quarter of 2023, to Operational profits in the second quarter of 2023. , and the report did not explain where these numbers came from. However, if the increase in excess reserves comes from net profits alone, it is estimated that net profits in the second quarter of this year should be US$850 million, which is far lower than the US$1 billion operational profits claimed by Tether, and not as high as it claimed. Quarterly growth of 30% should be a decline, right?
Earnings from investing in U.S. Treasury Bills
We try to estimate Tether's income based on the existing data. If we estimate it in the simplest way, 80 billion reserves are used to invest in U.S. Treasury bills, with a current return of more than 4%. Then the income from U.S. Treasury bills alone can be Bringing US$800 million in interest income to Tether.
Bitcoin reserves increase in value
Since Tether only disclosed its Bitcoin reserves for the first time in the first quarter of this year, only the first and second quarter data are available for reference in its audit report. According to our previous reports, Tether holds approximately 54,600 Bitcoins (Tether purchased 1,529 Bitcoins in the second quarter of 2023, so it is estimated that it held 53,071 Bitcoins in the first quarter). The appreciation of Bitcoin in the second quarter (estimated from 28,400 at the end of March and 30,700 at the end of June) was approximately 120 million in increase in the book value of Tether.
Where did the $1.48 billion in Season 1 come from?
Calculated in this way, the increase in excess reserves of US$850 million seems to be a reasonable figure, although we are skeptical about whether the increase in the value of Bitcoin's book can be counted as a source of profit. After all, this is not an actual gain. Profit figures. And looking back at the $1.48 billion net profit in the first quarter seems a bit excessive! If it wants to reach this number, Tether must have transaction fees or other unannounced sources of profit to be able to reach this astronomical number.
Tether has the final say!
In its report, Tether cited stock buybacks and other investments in energy-related initiatives funded by profits during the quarter as an explanation for the discrepancy between reported and actual profits. It’s just that Tether is not a listed company and does not need to comply with the regulations of regularly publishing financial reports. The content of its announcements is also decided by the company itself. Although Tether appoints BDO, one of the world's five largest accounting firms, to issue a quarterly assurance opinion (different from an audit) every quarter, its report is only used to confirm the accuracy of Tether's comprehensive reserve report and does not affect its financial statements. Make revelations. Most of the financial figures published each time are posted by its chief technology officer Paolo Ardoino on X (formerly Twitter), or Paolo Ardoino's explanatory figures are quoted in the report. It can only be said that in offshore companies, he really has the final say in everything!
This article Chain News’ actual dismantling of Forbes’ report: Tether’s profit decline, using different indicators to confuse the public, first appeared on Chain News ABMedia.
