Analysis of Tether's reserve base: capital deficit as a structural problem

Tether International S.A. de C.V. has approximately 181.2 billion dollars in assets to support issued tokens valued at 174.5 billion dollars. At first glance, the figures are impressive, but a detailed analysis reveals that the formal asset surplus over liabilities amounts to only 6.8 billion dollars — an excess that, in the context of global banking standards, appears unconvincing.

To assess the adequacy of this buffer, it is necessary to apply a framework used by regulators when analyzing financial institutions. Instead of inventing proprietary criteria, one should turn to a proven tool — the Basel Capital Framework, which regulates capital requirements for banks worldwide.

Tether’s Asset Structure: Diversification and Risks

Tether’s asset portfolio is distributed as follows:

• 77% in cash instruments and USD cash equivalents — low-risk assets
• 13% in physical and digital commodities — including gold and bitcoin
• The rest in credit positions and heterogeneous investments — the most opaque segment

When applying risk-weighting methodology characteristic of Basel III, the picture changes significantly. Cash instruments receive the lowest risk weights, while digital assets, especially bitcoin with its volatility of 45-70% per year ( compared to 12-15% for gold ), require a much larger capital buffer.

Under conservative scenarios, the total risk-weighted assets of Tether could range from 62.3 to 175.3 billion dollars — a huge range reflecting uncertainty in the classification of the credit portfolio.

Banking Standard: Capitalization Norms

Regulated banks must adhere to minimum capital standards relative to risk-weighted assets (RWAs):

• Common Equity Tier 1: 4.5% of RWAs
• Total Capital: 8.0% of RWAs (minimum under Pillar I)
• Systemic Buffer: an additional 2.5-3.5% for globally significant institutions

In practice, large systemically important banks hold 10-15% of RWAs in total capital to absorb unforeseen portfolio fluctuations.

Comparing these standards, Tether demonstrates a capitalization ratio of 3.87% to 10.89% — depending on the methodology used to evaluate digital assets. This means that, even in the most optimistic scenario, (the conditional risk weight of bitcoin at about 30-50%) is close to the minimum, but still below the market standard.

Capital Deficit: Quantitative Assessment

Applying the standard used for well-capitalized international banks (15% of RWAs), Tether may require an additional approximately 4.5 billion dollars in capital to support its current USDT issuance volume.

Under a stricter approach to digital assets (100% risk weight for bitcoin instead of 30-50%), the deficit increases to 12.5-25 billion dollars — a figure that would necessitate a fundamental revaluation of the portfolio.

Undistributed Group Profit: Argument and Counterargument

Tether positions itself as a solved problem through the group’s perspective. According to recent audit reports:

• Annual net profit of the group in 2024: over 13 billion dollars
• Shareholder equity of the group: over 20 billion dollars
• Undistributed profit since early 2025: already exceeding 10 billion dollars

These figures seemingly cover any concerns about reserve adequacy. However, there is a legal nuance: the group’s undistributed profit and its investments in renewable energy, bitcoin mining, artificial intelligence, and other risky assets are not equivalent to the issuer’s regulatory capital of $USDT.

The subsidiary issuing the token does not formally have guaranteed access to these assets in a crisis scenario. Management can perform recapitalization, but it is not obligatory — it is a discretionary decision. Therefore, relying entirely on the group’s undistributed profit when assessing safety $USDT would be overly optimistic.

Conclusion: Uncertainty Context

The question of Tether’s capital adequacy cannot be answered definitively due to the lack of public prudential reporting under the Pillar III model. However, applying standard banking metrics reveals a significant discrepancy:

• Under a conservative approach to digital assets, Tether approaches minimum international standards
• Compared to leading global banks, the deficit is about 4.5 billion dollars
• Under the strictest interpretation, the deficit could reach 12.5-25 billion dollars

The real risk lies not in formal insolvency but in structural fragility: the absence of transparent capitalization mechanisms, complete opacity of the credit portfolio, and dependence on discretionary decisions of the parent group. In a world where financial trust is built on standards, Tether remains an experiment within an unregulated financial system.