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On Wednesday, investors in Tether, the most dominant stablecoin in the crypto market, pointed out a change in the stablecoin’s Terms of Service and Risk Disclosure which described that its USD reserves will be composed of loans issued by Tether, not solely by cash.
“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”),” the altered Terms of Service read.
Investors were quick to point out the change on online forums including Reddit and requested a statement from Tether.
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Speaking to CCN, Kasper Rasmussen, the director of marketing at iFinex, the parent company of Bitfinex, said that the changes were made several weeks ago and confirmed that the composition of the assets had changed.
What Does a Change in the Composition of Assets Mean For Tether and Crypto?
According to Rasmussen, the change was made several weeks ago and it was directly communicated to the customers of Tether through its official site.
The executive said that Tether often reviews its Terms of Services and Risk Disclosures to accurately portray the firm’s holdings and reserves.
Tether’s change in the composition of assets, which several analysts have suggested is a move to increase the profitability of the company, was made to reflect Tether’s growth and operations in a similar manner as other institutions in the sector.
Rasmussen told CCN:
Tethers remain completely stable and 100% backed, so Tether’s reserves always equal or exceed the number of issued Tethers. The only change is that the composition of the assets that provide that backing includes a combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether.
A cryptocurrency researcher and the host of the popular podcast Magical Crypto Friends WhalePanda suggested that given the presence of a multi-billion dollar checking account, the company may be gearing towards an increase in profitability to sustain the business.
Many investors and analysts have questioned the profitability of stablecoin businesses and most companies have charged withdrawal or conversion fees to sustain operations.
Considering that it is challenging for a stablecoin to generate significant revenues to maintain a large team of developers, accountants, and others, the cryptocurrency sector could see more stablecoins employing different strategies to increase profitability.
“Or: We have $2 billion in a checking account, which is really silly and we’re still a for-profit company so let’s loan out a part of that $2 billion and earn some interest on it,” the researcher said.
Mixed Reactions
The response from the cryptocurrency community towards the change in the Terms of Service has been mixed.
Tether has an update, filed under Who Could Possibly Have Seen This Coming. pic.twitter.com/W7Xzw4TMjJ
— Patrick McKenzie (@patio11) March 14, 2019
One analyst said that without an official statement from Tether specifically on the nature of the loans, it could mean a variety of things.
He said:
Without clarification ‘loans to third parties’ and ‘collateral’ could mean a whole mess of things. Are they being put in some 30d cash bond (ie corporate loan) to get interest or worse case lending it out on bitfinex margin pool.
There is a real reason for concern. Others will have a problem with the words cash assets’. i don’t think i have one. U.S. Treasury notes are as good as cash (per us gov) , bare interest and are cash assets.
Investors still anticipate a public statement from Tether to be released to clarify the
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