The stablecoin issuer behind USDT, Tether, has reportedly added a private bank based in the Bahamas, Britannia Bank & Trust, to process dollar transfers on its platform. Tether’s collaboration with Britannia Bank makes it the third banking partnership for the stablecoin issuer in The Bahamas, succeeding Deltec and Capital Union.
According to an August 2023 report by Bloomberg, Tether has discreetly advised its clients to direct funds to Britannia Bank accounts. The precise commencement date of this banking collaboration remains unclear; it underscores Tether’s commitment to fortify its financial infrastructure.
Previous Events in the Crypto Space
Over the past year, bankruptcies and scandals in the crypto industry have prompted several banks to cut ties with firms operating in the crypto space following the collapse of a cryptocurrency exchange. The turmoil in the industry has caused several notable crypto firms, including crypto exchange Binance, to lose banking partners.
During the escalating regulatory scrutiny by United States-based crypto firms, many had to look offshore for banking partners increasingly. Experts from Bitcoin Decode Official provide much-needed insight into Tether’s banking relationships, historically shrouded in secrecy. In 2018, Tether confirmed that it had partnered with Bahamas-based Deltec Bank & Trust a few weeks after parting ways with Noble Bank. Capital Union, another bank operating in The Bahamas, is Tether’s other publicly known banking partner.
Why Offshore Partnership is Crucial
The partnership with Britannia Bank is critical for Tether and the broader cryptocurrency industry. The collapse of FTX in November 2022 led to heightened scrutiny from US regulators, making it increasingly challenging for crypto firms to maintain domestic banking relationships. As a result, companies such as Tether are looking offshore to secure more stable and less scrutinised banking partnerships.
Tether aims to build a more resilient financial infrastructure to withstand regulatory pressures by diversifying its banking relationships. The collaboration with Britannia Bank could be a step towards mitigating some of these concerns. With its more lenient regulatory environment, the Bahamas offers a conducive atmosphere for crypto businesses to operate, making it an attractive destination for companies like Tether.
The Outcome of Tether’s Decisions
Tether’s decision to maintain secrecy regarding the USDT issuer’s banking relationships, balance sheets, and corporate structure has fuelled industry speculation and unease about storing its substantial $86 billion in assets. On May 15th 2023, Tether announced that it pulled over $4.5 billion from banks. According to Tether’s post touting its latest attestation by BDO Italia, the USDT’s market capitalisation was developed from $66 billion to $82 billion in the initial quarter.
Tether dropped over 90% of its bank deposits, which brought it down from $5.3 billion to $481 million. Tether expressed that the remaining bank deposits were spread out amongst several banks that suffered losses after bank failures. Tether noted, “It boosted its United States Treasury bills to a new high of over $53 billion, or 64% of its reserves. Combined with other assets, Tether’s USDT token is now backed by 85% cash, cash equivalents and short-term deposits that can be sold rapidly to process redemptions. That includes over $7.5 billion in repo facilities”.
Tether added, “Decade-high yield rates drive revenues up, increasing Tether surplus reserves, effectively overcollateralising USDT”. For the first time in a show of its commitment to transparency, Tether mentioned its holdings of gold and Bitcoin (BTC). Before the announcement by Tether on May 13th 2023, social media was buzzing with former US Securities and Exchange Commission internet enforcement Office Head John Reed Stark and Tether’s Chief Technical Officer Paolo Ardoino. The debate occurred on X (formerly known as Twitter), where Stark responded to what Ardoino said.
According to CoinGecko, Tether’s USDT currently dominates the stablecoin market, with its $82.9 billion market cap representing 66.5% of the total market. Over the first four months of 2023, Tether’s market cap rallied over 20% to $80 billion during the banking crisis involving Signature Bank, Silicon Valley Bank and Silver Gate Bank but has since steadied around $80-82 billion.
Critics argue that Tether’s need for more transparency poses a significant challenge, as clarity is paramount to establishing trust within the crypto sphere. This concern becomes relevant given Tether’s role in supporting a substantial portion of the crypto market and its USDT token being a cornerstone of trading activities. The collaboration between Tether and Britannia Bank marks a significant milestone in the stablecoin issuer’s efforts to diversify its banking relationships and bolster its financial infrastructure. Despite the critics, the move by Tether highlights its proactive approach to navigating the complex economic landscape. While Tether continues to dominate the stablecoin market, regulators and industry stakeholders will closely watch its banking partnerships.
