This Year’s Tether Debate is a Good One to Have

Good Morning, Asia. Here’s what’s making news in the markets:

Welcome to Asia Morning Briefing, a daily summary of top stories during U.S. hours and an overview of market moves and analysis. For a detailed overview of U.S. markets, see CoinDesk’s Crypto Daybook Americas.

Tether is back in the spotlight as traders revisit a familiar question: is the world’s largest stablecoin as sound as its balance sheet suggests?

This isn’t a new debate. Tether truthers, usually with an anti-crypto bent, would concoct conspiracy theories about the health of USDT and how its being used to inflate the crypto market. Bitcoin, they would say, is about to go to zero as Tether is on the verge of collapse.

However, the debate has reignited once again and is now more serious, coming from actual market participants rather than hyperbolic critics.

The disagreement highlights a genuine divide over how to assess Tether’s strength.

Arthur Hayes, the founder of BitMEX, argues that Tether’s growing exposure to bitcoin and gold leaves it vulnerable if those assets decline, eroding its reported equity cushion.

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However, former Citi crypto research lead Joseph Ayoub pushed back, saying Hayes is working from an incomplete picture because Tether’s disclosed reserves do not reflect its full corporate balance sheet.

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Looking at the big picture, Ayoub argued, Tether holds equity, mining operations, corporate reserves, and one of the largest cash-generating Treasury portfolios in the world, giving it meaningful capacity to absorb losses.

Perhaps the more pointed concern is not solvency but immediacy.

Tether holds very little cash and relies on limited banking rails, raising potential questions about how quickly its largely non-cash reserves could be mobilized in an extreme redemption scenario.

Most of Tether’s reserves sit in short-dated Treasuries, reverse repos, money market funds, gold, and bitcoin. These are valuable assets, but they are not cash and cannot all be converted at the same pace, especially if multiple markets are under stress at the same time.

Everything functions smoothly as long as redemptions remain modest, which has historically been the case with USDT, as most users recycle it within crypto trading venues rather than converting it back to fiat.

The open question is what happens if that pattern breaks. A large shock in Asia’s trading hubs or a regulatory event affecting offshore markets could trigger a redemption surge that tests Tether’s ability to unwind positions and move dollars through its banking partners.

One of USDT’s record-breaking stress tests was in 2022 when it processed more than two billion dollars in redemptions within a single day while continuing to honour requests from verified customers at par.

Tether highlighted that, even during periods of severe volatility, it has never failed to meet redemptions from eligible users, presenting this as evidence that its asset base can be mobilized quickly when needed.

That episode shows that Tether can handle meaningful outflows, but it does not settle how the system would perform in a longer, more chaotic redemption cycle.

Tether, for its part, is dismissive of any criticism, saying that negative assessments of its balance sheet miss the big picture.

What makes this year’s debate useful is that it moves beyond the familiar noise. The arguments come from traders, analysts, and builders who rely on USDT every day and assess its strengths and weaknesses with clear eyes.

There is no talk of hidden conspiracies or imminent collapse, only a grown-up discussion about balance sheets, liquidity, and market plumbing. As USDT becomes more central to Asia’s trading flows, this perhaps is exactly the kind of scrutiny the market needs.

Market Movement

BTC: Bitcoin is trading around $86,436 after briefly sinking toward $84,000 during the U.S. session as rate-hike signals from the Bank of Japan pressured risk assets.

ETH: Ether is hovering near $2,794 and remains under sustained selling pressure as treasury-linked ETH plays slid more than 10% in Monday’s crypto-stock sell-off.

Gold: Gold opened at $4,218.50, briefly neared $4,300, and climbed as investors de-risked on falling crypto and stock futures while markets priced in an 87.6% chance of a Fed rate cut next week.

Nikkei 225: Japan’s Nikkei 225 rose 0.54% as financials, energy and basic materials led gains and industrial names like Fanuc and NGK Insulators jumped despite JGB yields hitting multi-decade highs.

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