Yesterday @CryptoHayes raised concern about the insolvency of USDT Amid Fed's lower interest rates, @Tether_to is moving away from USD backed instruments to Gold & BTC (12% of total assets now) But Hayes pointed out a 30% decline in the above assets can make USDT insolvent This tweet triggered my curiosity to go deep into: 1. Circulation mechanism of USDT 2. Backings of USDT 3. How Safe is USDT 4. How much USDT you should hold? -- 1. How new USDT comes into circulation Almost all of you who’re reading this piece hold USDT. But ever wondered how new USDT comes into circulation? a) Institutions or Exchanges deposit fiat (e.g., USD) into Tether’s verified accounts after KYC & $150 fee (Limited to corps as Tether demands minimum ~$100K deposit & withdrawal requests) b) Tether “authorizes” tokens in its treasury wallet as a pre-mint c) Confirmed deposits trigger issuance of equivalent USDT on respective blockchains What if you want your FIAT back? Here’s the redemption process: - Holders send USDT to Tether’s treasury - Tokens are burned, and fiat is returned from liquid reserves (cash, treasuries) 2. The USDT backings According to official Q3 ‘25 Tether reports, total amount of USDT in circulation is $174B+ Against this Tether holds $181B+ ($6B+ or 4% premium) of assets in it’s treasury Below chart shows the complete breakdown of What backs USDT. Although Tether is doing this process efficiently for over a decade, lack of real-time on-chain proof of treasury backings, supply and demand raise a lot of Qs around the solvency of the asset 3. How Safe is USDT Concerns a) As Arthur already mentioned a 30% drop in BTC + Gold value can make Tether insolvent b) 24%+ assets comprise of various riskier assets c) Sudden spike in redemption demands during a black swan event could exceed Tether's supply, risking a USDT de-peg Bull Case a) USDT is over-collateralized by $6B+ b) MOST profitable venture in crypto ($13B+ reported profit in 2024) // can easily handle undercolleralization, market volatility c) No major de-peg event (1%-9% recovered within days) in past decade (absorbed smoothly the recent $19B liquidations) 4. My Thoughts + How Should You Deal with USDT In my 4+ years of crypto I’ve always seen CT’s concern about USDT especially about it’s opaque treasury & B/S management Though Arthur raised a valid point, I strongly think USDT is in very good shape (check the Bull Case section for more) What should be the way forward?—“Hedging” - Diversify b/w USD stables USDT, USDC, DAI - Diversify amongst non-USD stables EURT, JPYC, GBPT - Keep USD stables as main ( 99% of stable market) Follow the market, stay updated on CT, based on market sentiments position yourself