Tether is lending out $5.5 billion in stablecoins less than a year after it said it would stop issuing loans

In December, Tether, the largest stablecoin by market capitalization and one of the key financial pillars of the crypto market, said it would stop issuing loans of its token by the end of 2023.

However, the stablecoin, with a market capitalization of nearly $84 billion, has increased the value of loans to customers to $5.5 billion as of June 30, compared with $5.3 billion in the previous quarter, according to the Wall Street Journal. Tether has disclosed very little about who’s borrowing its tokens or what those borrowers use as collateral.

“The banking industry is facing significant challenges and has proven incapable of keeping up with evolving global financial markets, something the Wall Street Journal has disregarded countless times in pursuit of tarnishing the reputation of true innovators like Tether,” the company said in a statement

Tether’s quarterly increase in loans raises concerns over its ability to withstand a flood of redemptions should enough users question its solvency, leading to a bank run. It also comes amid the stablecoin’s rise in dominance over the past six months as top competitor USDC has experienced a steady decrease in market share.

USDC’s decline

In March, Circle, the key company behind USDC, said that it had $3.3 billion stuck at Silicon Valley Bank. Its stablecoin—a cryptocurrency that, as its name implies, is designed to remain stable in comparison to the volatile ups and downs of tokens like Bitcoin—suddenly depegged from the U.S. dollar before regaining its peg days later.

Since then, traders have turned away from USDC, and its market capitalization of over $40 billion in March has tumbled to just below $24 billion in September.

Tether’s, meanwhile, has risen, adding $10 billion after USDC depegged. Its growing share of the stablecoin market increases the intensity of the spotlight on a company that’s historically been tight-lipped about the cash reserves it maintains to back the cryptocurrency.

Tether, for its part, says that any reports suggesting a lack of financial instability are misplaced. It “has accrued more than $3.3 billion in excess reserves to effectively reduce secure loan exposure as net result,” the company said in response to the Wall Street Journal. “Tether is still committed to removing the secured loans from its reserves.”