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Tether (USDT), a stablecoin that is pegged to the US Dollar, has now released its attestation report for the second quarter of 2023, showing a healthy increase in excess reserves and operating profit. However, the crypto-focused partisanship in the halls of the Capitol is now spilling into the stablecoin arena, significantly ramping up the uncertainty around this nascent industry’s prospects.

Tether Reveals That its Excess Reserves Increased by 35 Percent, and Operating Profit Jumped by 30 Percent in Q2 2023

As a refresher, Tether tokens, developed by the crypto exchange BitFinex and which trade under the symbol USDT, were originally backed by an equivalent number of US dollars. This meant that each USDT would always equal 1 USD. However, back in February 2019, Tether changed this policy to one where the Tether coins are now “100%” backed by “reserves,” which include currency, cash equivalents (such as US Treasuries), as well as other assets and receivables from loans made by the company to third parties. In 2022, Tether completely eliminated commercial paper holdings (including Chinese ones) from its reserves.

In the second quarter of 2023, Tether’s excess reserves increased by $850 million to reach $3.3 billion. Bear in mind that excess reserves are a portion of Tether’s profits that have not been distributed to its shareholders.

Moreover, in Q2 2023, Tether earned over $1 billion in operating profit, recording a sequential increase of around 30 percent. The company also announced a $115 million share buyback program.

Tether currently holds 85 percent of its investments in cash and cash equivalents, with total holdings of the US Treasuries now amounting to $72.5 billion.

Despite a number of regulatory hiccups over the years, Tether has continued to operate seamlessly during the current crypto bear market – a period that has been characterized by unprecedented volatility. This suggests the absence of any systemic lacunae. Nonetheless, as we had noted in a previous post, Tether recently identified 84 articles that the Wall Street Journal has written since the start of 2022, with an overwhelming majority of those painting the firm behind the USDT stablecoin in a negative light.

The Regulatory Noose Tightens Around Stablecoins

The US House Financial Services Committee recently moved seven pieces of legislation to the House floor, including two key crypto-related bills: Clarity for Payment Stablecoins Act of 2023 and Keep Your Coins Act of 2023. This move, however, was marred by partisan wrangling, with the leading Democrat, Maxine Waters, taking a particularly dim view of these crypto-focused legislations.

The Clarity for Payment Stablecoins Act provides clear-cut guidelines and oversight for stablecoins such as Tether’s USDT, including the requirement of maintaining reserves on a 1:1 basis, proper disclosure of procedures to ensure timely redemptions, monthly disclosure of reserve composition, and prevention of rehypothecation of reserves except in certain circumstances. However, given the fact that the legislation aims to exempt stablecoins from the federal securities laws, the North American Securities Administrators Association (NASAA) has been less-than-enthusiastic about this bill.

Stable coins will require KYC to own and reserves have to be audited. get ready for USDT to have a panic attack on this news 🤙 https://t.co/MAIxE13t8o

— Darkhorse (@DarkhorseDNME4) July 28, 2023

Perhaps, in retaliation to this move by the Republicans in the US House Financial Services Committee, the Democrats sneaked in a key stablecoin-focused amendment in the recently passed 2024 National Defense Authorization Act (NDAA). As can be seen in the above Xeet/tweet, the amendment requires the Secretary of Treasury to provide guidelines related to ensuring that issuers of stablecoins comply with financial sanctions imposed by the US. The Secretary is also required to determine the liabilities (or ramifications) for the issuer of a stablecoin vis-à-vis the transactions that take place after the coins are issued to the customer/client. This essentially imposes stringent requirements on the issuers of stablecoins to ensure compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) legislations in the US, which entail quite a lot of additional paperwork and processing costs for Tether and other stablecoin issuers.