Tether’s excess reserves fell from $8.23 billion at the end of the first quarter to $4.11 billion at the end of the second, even as the company reported $1.5 billion in net operating profit for Q2 2026.
According to the latest report issued by assurance firm BDO, the stablecoin issuer held $187.75 billion in total assets against $183.64 billion in total liabilities. USDT still accounts for more than 60% of the global stablecoin market. By most top-line measures, the quarter looked strong.
That is why the move in excess reserves stands out. The figure represents the cushion between the value of Tether’s assets and what it owes to USDT holders. A company that generated $1.5 billion in profit ended the quarter with a reserve buffer that was roughly half of where it started three months earlier.
Where did the missing cushion go?
The math in the article is straightforward. Tether began the quarter with $8.23 billion in excess reserves and then generated $1.5 billion in profit. With no other major changes, the cushion would have risen to roughly $9.7 billion. Instead, it ended at $4.11 billion. That implies about $5.6 billion was absorbed through unrealized losses, capital deployment, operating expenses, and other uses of funds.
The two biggest moving pieces were gold and bitcoin. During the quarter, Tether increased its gold holdings by 14 metric tons, taking the total from 132.2 tons to 146.2 tons. At the same time, gold prices fell about 15%, while remaining slightly above $4,000 per ounce. Even with more metal on hand, the market value of Tether’s gold position dropped from $19.84 billion to $18.84 billion, leaving an unrealized paper loss of about $1 billion.
Bitcoin followed the same pattern. Tether added 1,796 BTC, bringing total holdings to 98,933 BTC. The bitcoin price used in the assurance report fell from $68,200 to $58,600. As a result, the value of the company’s bitcoin position declined from $6.62 billion to $5.8 billion, a drop of about $820 million.
Taken together, gold and bitcoin accounted for around $1.8 billion in unrealized losses in the quarter. The article argues that once those losses are combined with new purchases of both assets, spending on USAT stablecoin infrastructure, and broader operating costs, the gap between the expected reserve figure and the reported one becomes easier to understand.
Another variable was secured lending. Tether’s outstanding secured loans fell by about $2.38 billion, or 15%. In general, shrinking that book can improve reserve quality because it replaces counterparty credit exposure with directly held assets. Still, this reduction came in a quarter when reserve cushions were already under pressure from mark-to-market losses. Tether did not disclose borrower identities or the collateral tied to those loans, so the article says it is unclear whether the reduction reflected loans maturing, early repayment, forced recovery, or a deliberate wind-down.
The balance sheet therefore looks materially different from where it stood at the end of Q1. Three months earlier, Tether could point to $8.23 billion in excess reserves on top of full 1:1 backing. By the end of Q2, the company was still profitable, but that extra buffer had been cut in half.
A reserve mix that raises a structural question
Over the past three years, Tether has shifted much of its reserves into U.S. Treasuries and short-dated government debt. That change was meant to answer years of criticism over transparency and asset quality. Treasury holdings now sit at the center of Tether’s earnings engine and support its claim that USDT is backed by liquid, high-quality assets.
At the same time, the company has continued to build large gold and bitcoin positions. Those assets do not generate interest income, and both can swing sharply in price. At the end of Q2, Tether held about $18.84 billion in gold and $5.8 billion in bitcoin. Combined, that was $24.6 billion, or about 13% of total assets.
For a company whose core obligation is to maintain a 1:1 dollar peg, putting 13% of reserves into volatile non-dollar assets creates a built-in tension. When gold and bitcoin rise, excess reserves expand and Tether’s overcollateralization improves. When they fall, the cushion can shrink quickly even if the operating business remains profitable. Q2 showed exactly that.
The article frames the issue in a blunt way: is Tether’s reserve strategy designed first for the stablecoin business, or for the broader goals of Tether as a company? A pure stablecoin issuer would typically place 100% of reserves into short-term dollar assets to maximize liquidity and minimize volatility. By choosing to hold gold and bitcoin, Tether is pursuing a second objective as well, long-term balance-sheet appreciation beyond the narrow needs of a dollar-backed token issuer.
Profitability still hinges on U.S. rates
The $1.5 billion Tether earned in one quarter is tied closely to one variable: short-term U.S. Treasury yields. Its business model is to invest customer funds backing USDT into Treasury bills and the repo market. When rates are high, the model throws off substantial profits. If rates move lower, those profits contract.
The article says Tether had fewer than 100 employees, according to reports. On that basis, annualized revenue per employee would exceed $60 million, far above major technology companies. But the piece also argues that this model does not have a durable moat. It depends heavily on a macro condition Tether does not control, namely elevated U.S. rates. It notes that most economists expect a rate-cutting cycle over the next 12 to 24 months.
Tether Chief Executive Officer Paolo Ardoino said in an official statement that the Q2 results showed resilience. “In the face of intense market volatility, USDT remains fully backed and our assets still exceed liabilities by $4.11 billion,” he said.
The wording is accurate, the article says, but “fully backed” is not the same thing as “backed with a thick safety buffer.” The second-quarter figures put that distinction into plain view.
Using a hypothetical scenario, the article says that if the Federal Reserve were to cut rates by 200 basis points over the next year, and if USDT supply stayed unchanged, Tether’s annualized profit could fall from about $6 billion to $3 billion. That would still be a large number, but the direction matters. Lower profits would make it harder to rebuild reserve cushions, fund expansion projects, and keep large gold and bitcoin positions in place. Q2 already showed that pullbacks in commodities and crypto can produce multi-billion-dollar paper losses in a single quarter.
The GENIUS Act’s 2028 compliance deadline adds another layer. If Tether has to reshape its reserves and adjust its business model to satisfy future U.S. stablecoin rules, those compliance costs could arrive just as rates fall and earnings narrow.
The full KPMG audit is still not finished
In March 2026, Tether said it had engaged KPMG for its first full financial audit. That was widely viewed as a milestone because critics had long focused on the fact that Tether relied on quarterly reserve attestations from smaller firms rather than a full audit from one of the Big Four.
Five months later, the work is still incomplete. Tether’s second-quarter reserve attestation was again issued by BDO, which has been its longstanding assurance provider. The Q2 announcement only said that work with a Big Four auditor was ongoing. It did not provide a completion date, a milestone update, or a schedule.
The article stresses the difference between an attestation and a full audit. An attestation verifies whether a company’s reported figures are accurate at a given point in time. An audit examines financial statements, internal controls, and accounting treatment across an entire reporting period. In practical terms, an attestation can confirm that Tether held $187.75 billion in assets on June 30. It cannot tell the market how those assets were managed, valued, or moved during the 90 days leading up to that date.
A delay does not automatically mean something is wrong. Audits of complex financial institutions by Big Four firms often take 12 to 18 months. Even so, the absence of a timeline leaves uncertainty in place. Circle, the issuer of USDC, already publishes audited financial statements on a regular basis. The article says a clean, unqualified opinion from KPMG would likely erase much of the concern around the wait. If the audit eventually identifies material issues or includes qualifications, that five-month gap could be seen very differently.
Competition is getting tougher
Tether still controls more than 60% of the stablecoin market, but the article says that position is not untouchable. Circle’s USDC now accounts for about 25% of the sector, and Circle completed its IPO in early 2026. As a listed company, it publishes full financial disclosures on a regular basis. For institutional clients with strict audit and compliance requirements, that transparency can be a meaningful advantage.
Regulation in the United States could sharpen the divide. Under the current version of the GENIUS Act, stablecoin issuers serving U.S. users would need to meet a set of requirements covering reserves, disclosures, and compliance. Tether is based in El Salvador, and the article says its offshore structure would likely require significant restructuring if it sought to meet those standards.
New entrants are also arriving. PayPal’s PYUSD has already taken part of the market, and institutions including JPMorgan and Bank of America have launched or announced in-house stablecoin products, according to the article. One shared feature among those rivals is that they operate within established regulatory systems. As stablecoin rules become more defined, that could matter more.
Tether, meanwhile, is expanding beyond the stablecoin business. The article says it has invested in bitcoin mining, AI infrastructure, and telecommunications. It has also launched USAT for the U.S. market and recently added Celo as a second mainnet. Whether that diversification will create long-term value is left open, but the article notes that these initiatives continue to consume funds that could otherwise reinforce the reserve buffer. The spending continued even as reserves contracted in Q2.
Tether’s private ownership structure adds another complication. Circle must answer to public shareholders, while Tether faces far less outside constraint. According to the article, decisions on capital allocation, including holding nearly $25 billion in gold and bitcoin, are made by a small group of managers and shareholders close to the core of the company, without the sort of board scrutiny a listed firm would usually face.
USDT supply growth has slowed sharply
USDT circulation rose by only $446 million in the second quarter, the slowest quarterly increase in more than two years. The article says that from 2024 through early 2025, quarterly supply growth often ran into the tens of billions of dollars. That pace has now almost stalled. At the same time, Tether said it added more than 30 million users during the quarter.
The disconnect between user growth and supply growth suggests that newer users are transacting in smaller amounts and using USDT more for payments and transfers than as a store of value. The article says this fits Tether’s public narrative of serving people without reliable access to banking and giving emerging markets a dollar channel. But it also means the metric that drives Tether’s earnings, the stock of circulating USDT, may be getting closer to a ceiling under current rate and market conditions.
Tether has been seeking partnerships in Africa, Latin America, and Southeast Asia to push USDT into day-to-day payment use. On July 28, it signed a memorandum of understanding with the Nairobi Securities Exchange, which the article describes as the latest move under that strategy. Yet payment throughput and stablecoin supply are not the same thing. A user who receives $50 in USDT and spends it a few hours later adds transaction activity, but does not necessarily increase the balance sheet base that generates income for Tether.
That slowdown in supply growth is arriving as competition from USDC intensifies in the institutional market. The article says Circle’s public listing and the progress of U.S. stablecoin legislation could push some capital that once leaned toward USDT into USDC or other newer stablecoins. Tether remains dominant in retail and in emerging-market payments, but the marginal users now driving adoption appear to hold smaller balances on average.
If USDT supply growth stalls while the reserve cushion keeps shrinking, the company’s room to maneuver could narrow. Tether rebuilds reserves through operating profit, and that profit depends on high rates and continued expansion in circulating supply. Markets are already expecting lower rates, and supply growth has slowed. That leaves the reserve cushion as a key shock absorber.
At the end of Q2, the $4.111 billion excess reserve represented about 2.2% of USDT’s total circulation. Against $184.6 billion in redemption obligations, the article argues that this is not a wide margin of safety, especially with 13% of reserve assets exposed to volatile price moves. At the end of Q1, the record $8.23 billion cushion amounted to about 4.5%. One quarter later, it had been cut in half.