Tether Boosts Gold Reserves by 80 Tons, Valued at $800M, Amid Economic Uncertainties

Tether Holdings SA, the world's largest stablecoin issuer, has recently disclosed the establishment of its own vault in Switzerland, housing approximately 80 tons of gold reserves valued at around 800 million dollars. The company plans to further expand these reserves, asserting that gold is logically "safer" than national currencies. This strategic move underscores Tether's commitment to diversifying its asset holdings, particularly in response to recent global economic uncertainties. By investing in gold, Tether aims to enhance the security and stability of its stablecoin, which is pegged to the US dollar. The decision to store gold in Switzerland is likely driven by the country's reputation for financial stability and neutrality, making it an ideal location for such high-value assets.

Tether, headquartered in El Salvador, currently holds nearly 80 tons of gold, with the majority directly owned by the company. This makes Tether one of the largest gold holders globally, alongside major banks and sovereign nations. The company's gold reserves are roughly equivalent in value to the total holdings of precious metals and other commodities by UBS Group AG, a leading Swiss banking giant. These reserves constitute nearly 5% of Tether's overall holdings, as reported in the company's latest March report. The company's gold vault in Switzerland is considered one of the most secure in the world, although the exact location and the timing of the gold reserve's establishment remain undisclosed for security reasons.

Tether's stablecoin, USDT, is designed to maintain a one-to-one value with the US dollar and currently has a circulating supply of approximately 159 billion dollars. The company generates profits by issuing tokens in exchange for dollars and investing in short-term US Treasury bonds and other assets. The recent emphasis on gold reserves reflects Tether's broader strategy to mitigate risks associated with the volatile nature of cryptocurrencies and the potential regulatory challenges they face. The company's move to diversify its asset holdings is seen as a proactive measure to ensure the stability and trustworthiness of its stablecoin in an increasingly regulated financial landscape.

Tether's decision to hold gold reserves is particularly noteworthy given the growing scrutiny and regulatory concerns surrounding stablecoins. The rapid expansion of stablecoins has raised alarms among regulatory bodies and law enforcement agencies, with Tether being a focal point due to its size and past controversies regarding its reserve holdings. One of the primary concerns is that stablecoins could facilitate the movement of large sums of money outside the formal banking system, posing significant risks to global payment security. Stablecoins are digital currencies that maintain their value by being pegged to core reserve assets such as the US dollar, euro, or gold. As key legislation to regulate stablecoins advances in the US Congress, these digital currencies are increasingly becoming mainstream financial assets.

Stablecoins essentially act as "on-chain dollars," backed by highly liquid dollar assets such as cash and short-term US Treasury bonds on a one-to-one basis. By combining the stability of the US dollar with the efficiency of blockchain technology, stablecoins offer a new form of payment that is both stable and efficient. This innovation has opened up new commercial opportunities in the capital markets, particularly in the realm of "digital dollarization." Historically, stablecoins have been primarily used as a conduit for traders to move funds in and out of other cryptocurrencies. However, there is growing optimism among cryptocurrency investors that stablecoins could play a more significant role in global commerce and trade, especially as a stable payment tool for cross-border transactions.

Recent regulatory developments have generally excluded gold and other alternative assets as suitable backing for stablecoins. For instance, regulations introduced by the European Union last year, as well as proposed stablecoin legislation in the US, only permit sovereign cash and cash equivalents, such as short-term government bonds, as backing assets for stablecoins pegged to fiat currencies. If Tether aims to gain regulatory approval in these markets, it may need to sell the gold used to support USDT, aligning with the current regulatory framework. In addition to USDT, Tether also issues a gold-backed token, XAUT, where each token is backed one-to-one by one ounce of gold. XAUT tokens can be redeemed for physical gold directly in Switzerland. The company has issued XAUT tokens equivalent to 7.7 tons of gold, valued at approximately 819 million dollars, although this is still significantly smaller than the more liquid gold-backed exchange-traded funds (ETFs), with the largest holding nearly 950 tons of gold.

Tether's strategic shift towards gold reserves is driven by the belief that gold is inherently safer than any national currency. This perspective is supported by the recent surge in gold prices, which have risen by approximately 25% this year as investors seek to hedge against geopolitical tensions and expanding trade wars. The strong demand from central banks and sovereign institutions has also bolstered gold prices. Tether's decision to own its own vault, rather than using third-party gold storage providers, is motivated by cost considerations. As the actual circulation of Tether's gold-backed tokens approaches 100 billion dollars, the cost of paying 50 basis points in fees would be substantial. By owning its own vault, Tether can significantly reduce gold storage costs as its scale expands, making it a more cost-effective solution in the long run.