TETHER'S INTEREST RATE TRADE

Summary from the TLDR Crypto newsletter

Tether is running an interest rate trade – buying gold and Bitcoin, anticipating Fed cuts that would crush their interest income. A 30% decline in these positions would wipe out equity and render USDT insolvent. However, its disclosed reserves operate under a "matching philosophy", showing only liability backing. A separate undisclosed equity balance sheet holds mining operations, equity investments, and corporate reserves funded by $10 billion annual profits from $120 billion treasuries at 4% yields. Tether's equity, valued at $50-100 billion, provides a buffer sellable to cover balance sheet gaps. The company operates at significantly higher collateralization than banks' 5-15% fractional reserves, despite lacking lender-of-last-resort protection.