Tether, the issuer of USDT, the worldâs largest stablecoin, is exploring new ways to use its massive profits. And so the company is now looking into lending to commodity traders.
This could seriously shake up the sector, which typically relies on banks for credit. Tether has already been having private talks with several companies that are hungry for funding, according to insiders.Â
The goal is to offer US dollar loans to firms moving goods like oil, metals, and food across the globe.
Tether’s big play in commodity finance
USDT has already found a place in countries like Venezuela and Russia. Traders and producers there are using it to avoid dealing in US dollars due to sanctions.
Tether sees an opportunity to expand this by offering loans to the commodity sector on a larger scale. The companyâs pitch is that it can provide funding without all the regulatory hurdles that traditional lenders face, which could speed up transactions and payments.
The big players, like Trafigura Group, have access to billions of dollars in credit through traditional banks. At the end of March, Trafigura had $77 billion in credit lines with around 150 institutions.
But smaller companies donât have the same level of access. They often struggle to secure the funds needed to keep their operations running smoothly. Tether is stepping in to fill that gap.
The company has been reporting some huge profits lately, which gives them the firepower to enter this space. In its most recent financial report, it showed a profit of $5.2 billion for the first half of 2024.
This money could easily be funneled into lending to commodity traders, which would give them a fresh source of capital that isnât tied to traditional banks. Private credit has already started to make a mark in the sector, and Tether wants to take it further.
Tetherâs CEO, Paolo Ardoino, confirmed that the company is actively exploring opportunities in commodity finance. âWe are still in the early stages,â he told Bloomberg.
As the war in Ukraine continues to cause major disruptions in the commodity markets, traders have seen prices swing wildly. This has created a liquidity crunch for many firms, but also led to record profits for some.
The war has also shown just how reliant the commodity sector is on the dollar. The US government has used this reliance to its advantage, imposing sanctions that have targeted natural resource exports from underdeveloped.
What makes Tetherâs pitch particularly interesting is that they donât have to play by the same rules as traditional banks. Banks have to deal with tons of regulations when lending money, especially when it comes to financing trades involving raw materials.
These rules are designed to protect the banks from taking on too much risk, but they also slow things down. Tether, on the other hand, isnât bound by these regulations, which means they can offer faster, more flexible financing options.
