Tether, the leading stablecoin issuer, is significantly expanding its reach into commodity lending, leveraging both cash and its USDt (USDT) stablecoin. This move signals a major shift for the company, transforming it from a stablecoin provider into a more comprehensive global finance player. According to CEO Paolo Ardoino, Tether has already deployed approximately $1.5 billion in credit to commodity traders and plans to dramatically increase its exposure in the sector.
Tether's focus is on traditional commodity trades, encompassing agricultural products like cotton and wheat, as well as oil. The company's lending activities are managed through its recently established Trade Finance unit, which concentrates on short-term credit to facilitate the movement of goods across global supply chains. In the commodities market, trade finance is crucial for providing the necessary funding for traders to purchase, transport, and deliver cargo.
Ardoino highlighted that Tether's expansion into commodity lending is driven by the potential to offer faster working capital and challenge the traditional bank-led trade finance. While some companies might be hesitant to borrow in USDt instead of dollars, Tether's growing financial influence could outweigh such concerns. With nearly $184 billion worth of USDt in circulation, Tether has become one of the most profitable companies globally based on a per-employee basis.
Tether's move into commodities builds upon its existing presence in the sector. The company's tokenized gold product, Tether Gold, has experienced substantial growth during the recent bullion rally, and Ardoino has stated that the company holds over 100 tons of physical gold. This diversification is rooted in the success of Tether's stablecoin operation. USDt was initially created to provide crypto traders with a dollar-linked asset when accessing traditional banking services was challenging. Since then, stablecoins have evolved into mainstream financial tools used for remittances, cross-border payments, and on-chain settlements, valued for their speed, low cost, and 24/7 transferability.
Tether's entry into commodity lending could disrupt traditional bank credit arrangements. The commodity trading sector has faced volatility, especially after the Russia-Ukraine conflict, leading to liquidity challenges. Tether's involvement could offer an alternative to traditional credit systems, which are often vulnerable to global geopolitical events. This plan could fill the financing gap in a market seeking alternative solutions and increase the use of stablecoins in commodity trading.
Traditional banks have been reducing their participation in commodities finance after instances of fraud and company failures. While major trading houses can still secure credit easily, smaller firms often struggle to access funds, limiting their business. This situation has created opportunities for private lenders willing to take on risks in areas where banks are hesitant. These lenders typically charge higher interest rates to offset the additional risk. For Tether and other private lenders, commodities loans can provide fast and steady interest flows.
Tether's activities in commodity lending operate independently from the reserves that back its stablecoins. In addition to USD lending discussions, Tether has diversified its investments into sectors such as sustainable energy, Bitcoin mining, and artificial intelligence. These moves reflect Tether's broader ambitions beyond the stablecoin market.
The use of USDT helps facilitate lending in regions such as Latin America, where much of the world's commodities are produced. Loans are essential in commodities trading, with banks usually funding the purchase and transport of food, metals, oil, and gas worth trillions of dollars globally.
