The cryptocurrency market is continually evolving, and stablecoins like Tether are becoming increasingly influential. Recent disclosures have revealed that Tether operates more like a private central bank than a traditional stablecoin issuer, managing a large and complex balance sheet, generating significant profits, and wielding policy tools to navigate market and regulatory conditions. This shift highlights the growing intersection between traditional finance and the crypto economy, raising questions about regulation, transparency and systemic implications within digital assets.
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Tether has $181.2 billion in reserves against $174.5 billion in debt, resulting in over $6.8 billion, with reserves heavily invested in U.S. Treasuries, gold, Bitcoin, and reverse repos.
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In 2025, high interest rates allowed Tether to generate more than $10 billion in interest income. This is a profit level that is not typical of a typical cryptocurrency issuer similar to a financial institution.
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The company has taken policy measures similar to central bank functions, including freezing authorized addresses, adjusting blockchain support, and allocating profits to Bitcoin.
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Despite these similarities, Tether has no public authority or backstop, instead relying on attestations rather than comprehensive audits and relying on private counterparties to manage its reserves.
Once solely focused on issuing stablecoins, Tether now functions as an important financial institution in the cryptocurrency space. The company’s balance sheet consists of short-term US Treasuries, reverse repos, gold, and Bitcoin, with the ability to mint and redeem USDT at scale. Additionally, similar to private central banks, they can also freeze addresses associated with sanctions, reflecting their proactive stance on compliance and security.
Acting like a central bank: what does it mean?
In reality, Tether performs four activities that mimic central bank functions.
First, issue and redeem stablecoins on demand. Verified users can mint new USDT or redeem it for USD via fiat wire transfer. The total supply depends on these processes. While secondary market transactions take place on crypto exchanges, the underlying balance sheet changes through minting and redemption actions.
Second, it manages reserves similar to the fixed income desk, holding mostly short-term U.S. Treasuries and repos, with some gold and Bitcoin as well. This approach ensures liquidity and maintains demand for U.S. fixed income products in the broader financial ecosystem.
Third, the company earns “seigniorage”-like profits by collecting interest on Treasury holdings, providing Tether with a stable revenue stream (more than $10 billion by 2025) and generating about $6.8 billion in excess reserves in the third quarter alone.
Finally, Tether can employ policy-style tools, such as contract-based capabilities, to freeze or limit address activity and tailor blockchain support to reduce operational risk, especially when it involves enforcement of sanctions.
Expansion of policy tools similar to central bank tools
Additionally, Tether carries out intervention strategies similar to those of central banks. As part of an aggressive compliance policy introduced in December 2023, addresses associated with notifications of sanctioned entities and law enforcement agencies can be frozen. The company has already dealt with incidents such as a wallet related to Russian exchange Garantex, demonstrating its ability to manage dollar liquidity on-chain.
Its reserve management parallels its public market operations, maintaining a mostly liquid portfolio of U.S. Treasury securities and repos to enable efficient minting and redemption. Profits are generated from high-yielding holdings and supported by a carefully managed reserve profile that supports large scale operations and excess capital accumulation.
Additionally, Tether disciplines blockchain activity by supporting and then scaling back several networks, including Omni, BCH-SLP, Kusama, EOS, and Algorand, to focus on liquidity where demand and infrastructure are strongest. Additionally, the company plans to launch USAT, a US-regulated dollar token issued by Anchorage Digital Bank, to provide a compliant onshore US dollar alternative alongside USDT, demonstrating its ambition to expand within strict regulations.
From stablecoin issuer to infrastructure player
In recent years, Tether has evolved beyond being just a stablecoin provider to a broader financial infrastructure operator. Since April 2024, it has been organized into four divisions: Tether Finance, Data, Power, and Edu. These divisions oversee digital asset services, data analytics, renewable energy projects, and educational initiatives, extending their influence across the blockchain ecosystem.
On the energy side, Tether has invested in El Salvador’s Volcano Energy, a wind and solar power plant that powers Bitcoin mining operations. We have also stopped support for several legacy blockchains to streamline our infrastructure focus and partnership strategy, prioritizing high-utilization platforms and development pipelines.
To further penetrate the US market, Tether announced plans for USAT, a US-regulated stablecoin issued by Anchorage Digital Bank, which aims to provide a compliant dollar token that coexists with USDT, which will continue to serve users around the world.
Why does the analogy break down?
Despite its growing resemblance to a central bank, Tether remains a private company with no mandate of sovereignty. It lacks the ability to set interest rates, act as a lender of last resort, and implement macroeconomic policy. Its transparency relies on quarterly certifications rather than full audits, and it relies on private banking and custody arrangements that are outside of direct government control.
Moreover, some “policy-like” measures, such as address freezes, are primarily compliance measures rather than macroeconomic tools. The company’s dependence on private companies means that market confidence is built around the transparency of its reserves and the stability of its operations.
In December 2023, Tether revealed that it had assisted law enforcement agencies in freezing more than $835 million related to illegal activities, demonstrating its active role in compliance but also highlighting the limits of its authority.
Where does tether fit into the big picture?
Overall, Tether appears to be similar to a dollar-denominated private central bank within the cryptocurrency ecosystem, expanding and contracting supply, managing reserves, earning large profits, and exercising policy control, despite the lack of formal government support. Its trajectory will be heavily influenced by ongoing reserve transparency, earnings reporting, regulatory developments, and the potential introduction of onshore USD stablecoins in the US market. How they overcome these factors will determine whether they continue to resemble central banks or branch out into different roles within the digital economy.