Tether at a crossroads: from government bonds to gold and Bitcoin

Tether faces an unprecedented challenge. For years, its business model was extremely simple and profitable: hold reserves in U.S. Treasury bonds, earn high interest rates, while USDT holders receive zero. Now, as the financial world prepares for a low-interest-rate era, the stablecoin giant must overhaul its strategy. The change is drastic — gold, Bitcoin, and even unsecured loans are appearing on the company’s balance sheet. Is this a brilliant preparation for a new economic cycle, or dangerous gambling with stablecoin stability? Tether’s history shows that the answer is… complicated.

Income machine powered by Treasury bonds

Before diving into current transformations, we need to understand how Tether built its empire. The model is deceptively simple: issue USDT backed by reserves in U.S. Treasury bonds. Token holders receive zero return. Tether, on the other hand, makes money. And it makes really good money.

In recent years, USDT holders have witnessed their capital backing over one trillion dollars in U.S. Treasury bonds, generating about 5% annual yield for Tether. That meant roughly one billion dollars in annual income per percentage point of interest rate. In high-interest environments — such as the 4.5–5.5% range maintained by the Federal Reserve for most of the past three years — this model was printing billions in profit.

By comparison: Circle, the second-largest stablecoin issuer, recorded a net loss of $202 million during the same period. Tether, however, amassed over $10 billion in net revenue just in 2025. U.S. Treasury bonds were for Tether what gold mines are for mining conglomerates — a source of virtually unlimited income.

This system worked perfectly as long as bond yields remained high. But what happens when this machine stalls?

When the profit calculator stalls: the challenge of falling rates

CME FedWatch data indicates something Tether is reluctant to hear: by December 2026, there’s over a 75% probability that the federal funds rate will fall from the current 3.75–4% to the range of 2.75–3% or 3.25–3.50%. This is drastically lower than the 5% on which Tether’s 2024 boom was based.

Every percentage point decrease in rates means about $15 billion in annual lost revenue — more than ten percent of current net profits. For a company whose business relies almost entirely on the spread between bond yields and zero for users, this is a serious problem. The traditional profit calculator begins to show smaller numbers.

Historically, a decline in bond yields has always meant weaker prospects for stablecoin issuers. But Tether is not a traditional player. Even before the Federal Reserve started reversing its monetary policy, Tether investors began preparing for this scenario. The signal came when the forward rate curve indicated a peak in 2023. That’s when the decision was made: time for restructuring.

Restructuring reserves: gold, Bitcoin, and preparing for a new cycle

From Q3 2023 to Q3 2025, Tether’s reserve asset composition underwent a radical transformation. First, the company practically eliminated its exposure to commercial paper (short-term unsecured debt). In 2021, it held over $30 billion in these instruments. Today, almost zero.

What replaced them? U.S. Treasury bonds, of course — but that was just the beginning. The most intriguing change was the appearance of assets absolutely unusual in stablecoin issuer balance sheets. As of September 30, 2025, Tether held over 100 tons of gold worth about $13 billion. It also owns over 90,000 Bitcoin, valued at nearly $10 billion. Together, they account for about 12–13% of total reserves.

In contrast: Circle, very cautious in asset management, holds only 74 Bitcoins worth around $8 million.

Why gold and Bitcoin? The economics are clear. When Treasury yields fall, gold usually performs exceptionally well. We saw this firsthand last year: after the Federal Reserve cut rates, gold prices rose over 30% within just a few months from August to November. Bitcoin shows similar patterns — when market liquidity increases (which typically accompanies low rates), Bitcoin reacts like a high-beta asset, plunging sharply.

Tether’s strategy is thus designed around arbitraging the economic cycle. In high-rate times — maximize income through Treasury bonds. In low-rate times — hope for appreciation of gold and Bitcoin, which can supplement lost yields. Theoretically clever. In practice? It’s raising fears.

Stability trap: risks on the road to diversification

Two weeks ago, S&P Global Ratings downgraded Tether’s ability to maintain the USDT peg to the dollar from level 4 (limited) to level 5 (weak). The shift was like a punch in the face for investors who trusted the firm. The agency clearly pointed out two issues.

First, the presence of such large amounts of Bitcoin and gold in reserves. Bitcoin now makes up about 5.6% of USDT circulation — more than the 3.9% safety buffer designed by the issuer. If Bitcoin drops sufficiently low (and we’ve already seen signs of that recently), reserves could become insufficient.

Second, lack of transparency. Tether does not disclose enough details about riskier assets. What exactly is in the “unsecured loans” category? Which companies, under what conditions? These questions remain unanswered.

Here lies a fundamental conflict. On one hand, Tether is correct — low interest rates will indeed be destructive for the traditional stablecoin model backed by bonds. Investing in gold and Bitcoin is a sensible hedge. On the other hand, the most important task of a stablecoin issuer — surpassing all others — is to protect the dollar peg. If that link breaks, the business collapses.

History shows that a sufficiently large depreciation of Bitcoin (combined with declines in gold and bonds) can wipe out the safety margin. S&P clearly indicates: if Bitcoin falls, and other high-risk assets also lose value, reserves may prove insufficient.

The game is just beginning

Tether is in a position that can be described as “damned if you do, damned if you don’t.” If it sticks to Treasury bonds in a low-rate world, profits will erode. If it heavily exposes itself to Bitcoin and gold, it risks losing the peg.

The decision to rebalance the portfolio was not wrong — it was inevitable. But how it’s done, with limited transparency and increasing exposure to high-risk assets, raises justified concerns.

The next few months will be crucial. How will the Federal Reserve actually cut rates aggressively? How will gold and Bitcoin prices behave in this scenario? Will Tether be able to maintain the peg, risking its reserves on such uncertainties?

The story of Tether, and along with it the entire stablecoin ecosystem, is still being written. But one thing is certain: the era when government bonds reliably generated billions in profits is over. What happens next will be much more complex — and much more risky.