Tether's Cooperation Model and Challenges with Traditional Banks
Tether (USDT), as the largest stablecoin by market capitalization, relies on the support of the traditional commercial banking system for its operations. Tether primarily conducts fiat deposits and withdrawals through a few traditional financial institution partners, including Britannia Bank & Trust, Cantor Fitzgerald, Capital Union, Ansbacher, and Deltec Bank and Trust. However, these banks typically do not have direct master accounts with the Federal Reserve and rely on correspondent banks to process cross-border USD flows. Correspondent banks are often cautious about servicing cryptocurrency businesses, potentially requiring smaller partner banks to cease operations with crypto clients due to anti-money laundering (AML) and know-your-customer (KYC) rule risks and high compliance costs, or face losing their correspondent banking relationships. Tether has, in fact, changed banking partners multiple times for this reason, such as the interruption of its correspondent banking relationship with Wells Fargo in 2017.
Regulatory Scrutiny and Concerns
Global regulators have expressed ongoing concerns about how Tether and other stablecoins integrate with the broader financial system. The Federal Reserve and the U.S. Treasury Department have voiced dissatisfaction with Tether's regulatory transparency, reserve quality, and potential systemic risks. The Bank of Thailand is also intensifying its scrutiny of USDT transactions, finding that some may bypass regular disclosure requirements or bank transfer processes. In the U.S., the Senate Banking Committee is advancing the CLARITY Act, which aims to provide a clearer regulatory framework for digital assets like stablecoins and address concerns that stablecoin rewards could lead to a drain on bank deposits.
The Debate on Stablecoin vs. Traditional Bank Deposit Safety
The debate over the merits of stablecoins versus tokenized bank deposits is intensifying. Tether CEO Paolo Ardoino argues that fully reserved stablecoins are safer than tokenized bank deposits because stablecoins are almost entirely backed by liquid assets (such as U.S. Treasury bills), whereas traditional bank deposits typically have only about 10% of their reserves in liquid assets. He positions Tether as a "fully reserved bank" that does not issue loans and believes its liquidity position is stronger than traditional banks. However, Pablo Hernández de Cos, General Manager of the Bank for International Settlements (BIS), believes that tokenized bank deposits are a more promising foundation for the future of money and expresses concerns about the potential systemic risks posed by stablecoins, including redeemability, interoperability, financial integrity, and monetary sovereignty. The BIS also notes that if stablecoins are adopted on a large scale, banks could face increased funding costs due to deposit outflows.
Traditional Banks Actively Exploring the Stablecoin Sector
Facing the challenges and opportunities presented by stablecoins, an increasing number of traditional financial institutions are actively exploring entry into the stablecoin sector. More than a dozen financial institutions, including Bank of America, Wells Fargo, and Santander, are exploring the joint issuance of stablecoins, aiming to protect existing businesses and modernize payment systems. JPMorgan Chase is also reviewing the possibility of issuing its own stablecoin to secure a foothold in the digital assets space. These initiatives indicate that the traditional banking system is attempting to adapt to the era of digital currency through innovation and seek new revenue streams.
Key Data and Market Position of Tether
As of early 2026, Tether (USDT) supply has approached $190 billion, accounting for approximately 60% of the total global stablecoin supply, making it the largest stablecoin by market capitalization. Tether reported total reserves of $118.4 billion as of August 1, 2024, including $5.3 billion in excess reserves. Its reserve composition primarily includes U.S. Treasury bills (approximately 80% of total reserves), reverse repurchase agreements, money market funds, Bitcoin holdings (approximately 3%), and gold reserves (approximately 5%). Tether is one of the largest non-government holders of U.S. Treasury bills globally. Its profitability is strong, with profits of $4.52 billion in Q1 2024 and $1.3 billion in Q2, totaling $5.2 billion in the first half of the year, mainly due to earnings from its U.S. Treasury, gold, and Bitcoin holdings. Tether is also one of the most traded cryptocurrencies, having surpassed Bitcoin in 2019 to become the largest cryptocurrency by trading volume globally. As of July 2024, Tether has over 350 million users worldwide and is widely used in emerging markets as "digital gold" against local currency depreciation, as well as for cross-border remittances and trade settlement. Investors can view real-time Tether prices and market dynamics on Svmuu.
Multiple Perspectives and Future Outlook
- Tether (USDT): Aims to enable the digital use of traditional currencies through blockchain technology, providing a price-stable digital currency. Emphasizes its 100% reserve backing and regularly publishes proof of reserves. CEO Paolo Ardoino believes that USDT offers a practical alternative for daily commerce and cross-border activities in regions facing currency volatility and limited traditional banking services, especially in emerging markets.
- Commercial Banking System: Traditional banks face compliance (KYC/AML) and reputational risks when providing services to cryptocurrency companies, leading to "de-banking" issues. Banks are concerned that customer funds flowing into stablecoins will reduce deposits and weaken their lending capacity. The Bank Policy Institute warns that stablecoins could pose "run" risks and potentially spread leverage crises to the banking system.
- Regulatory Agencies: Generally express concerns about stablecoin regulation, transparency, reserve quality, and potential systemic risks. Emphasize the need for clear regulatory frameworks to ensure financial stability and consumer protection. The BIS favors tokenized bank deposits, believing they can better maintain the "singleness" of money and settle through central banks.
- Cryptocurrency Industry Analysts: BitMEX founder Arthur Hayes believes that Tether's vulnerability lies in its relationship with the Federal Reserve, the U.S. Treasury, and its banking partners, rather than its reserve status. Some analysts question the transparency and verifiability of Tether's reserves, as well as its ability to fully cope with the risk of large-scale redemptions. However, some also argue that Tether successfully handled $16 billion in redemptions after the Terra stablecoin collapse, demonstrating its liquidity and stability.
The interaction between Tether and the commercial banking system will continue to evolve, with technological innovation, market demand, and regulatory frameworks jointly shaping the global financial landscape through the ongoing integration and competition between stablecoins and traditional finance.
