Stablecoin giant Tether establishes its own vault, holding 80 tons of gold reserves.

Author: Dong Jing, Wall Street Journal

Tether Holdings SA, the world's largest stablecoin issuer, has an exclusive vault in Switzerland that stores approximately $8 billion worth of gold reserves, making it one of the largest holders of gold globally outside of banks and national institutions.

On July 8, according to media reports, this cryptocurrency company based in El Salvador currently holds nearly 80 tons of gold, most of which is directly owned by Tether. CEO Paolo Ardoino stated that the company has its own vault in Switzerland, calling it "the safest vault in the world," but refused to disclose its specific location for security reasons.

The $8 billion worth of gold held by Tether is roughly equivalent to the total value of precious metals and other commodities held by UBS Group. The circulating supply of the stablecoin USDT issued by the company reaches $159 billion, with precious metals like gold accounting for nearly 5% of its reserves.

The analysis points out that this disclosure comes at a time when regulators are expressing concerns about the rapid growth of stablecoins. New regulatory requirements impose strict demands on the asset backing of stablecoins, typically allowing only cash and cash equivalents as backing. This means Tether may need to sell its gold reserves to comply with regulatory requirements in the European and American markets.

The massive scale of gold reserves is striking

Tether currently holds $8 billion in gold reserves, placing it among the largest gold holders in the world. This scale is comparable to the total value of precious metals and other commodities held by a few major precious metals trading banks, such as UBS, that publicly disclose such information.

According to the latest report released by Tether in March this year, precious metals account for nearly 5% of the company's reserves. As the issuer of the USDT stablecoin, Tether profits from its collateral by investing in assets such as U.S. Treasury bonds, while gold reserves constitute an important part of its diversified investment strategy.

The company chose to establish its own vault rather than using third-party vault operators commonly found in the precious metals industry, mainly for cost considerations. Paolo Ardoino stated:

If the circulation of the company's gold token XAUT grows to $100 billion, paying a storage fee of 50 basis points would be a substantial expense. If you have your own vault, the custody costs will significantly decrease as the scale increases.

The XAUT tokens currently issued by the company are equivalent to 7.7 tons of gold or $819 million, with each token backed one-to-one by one ounce of gold. Token holders can directly redeem physical gold in Switzerland, but the scale is still much smaller than the largest gold ETF, which holds nearly 950 tons of gold.

Regulatory Environment Poses Challenges to Gold Reserves

The new regulatory framework for stablecoins poses a potential threat to Tether's gold reserves. The rules introduced by the EU last year and the legislation proposed in the United States only allow cash and cash equivalents (such as short-term government bonds) as supporting assets for stablecoins pegged to fiat currency.

Under these regulatory rules, if Tether seeks authorization to operate in the relevant markets, it will be required to sell the gold reserves backing USDT. This requirement reflects regulators' concerns about stablecoins circumventing the formal banking system for large fund transfers.

The explosive growth of stablecoins has raised the alert of regulators and law enforcement agencies, with Tether receiving particular attention due to its large scale and past questions regarding its reserve status.

Optimistic about the long-term investment value of gold

Ardoino expressed optimism about the long-term value of gold, stating:

Gold should logically be a safer asset than any national currency. If people start to worry about the potential growth of U.S. debt, they may look for alternative options.

Gold has risen by about 25% this year, with investors viewing it as a safe-haven asset against geopolitical tensions and the escalating trade war.

In addition, the strong demand from global central banks and sovereign institutions has also supported gold prices. Ardoino pointed out that every central bank in the BRICS countries is buying gold, which is an important reason for the rise in gold prices.