Tether Changes Profit Account: Why Government Bonds Are No Longer Enough?

Tether, the world’s largest stablecoin issuer, is making a strategic shift that changes the fundamentals of its business model. When we think of government bonds backing circulating tokens, we usually associate them with a safe source of income. However, the history of this giant shows something deeper – not just a tactical investment change, but a fundamental reorganization of its reserve structure in response to changing macroeconomic conditions.

When government bonds were a profit machine

For the past three years, Tether’s business model operated with the precision of an accounting machine. USDT holders received zero percent returns, while Tether itself earned about 5% annually from a massive portfolio of government bonds worth nearly a trillion dollars. The math was simple – each percentage point of yield translated into roughly one billion dollars in annual income for the issuer.

When the Federal Reserve maintained interest rates between 4.5% and 5.5%, Tether accumulated surpluses that grew rapidly. By September 30, 2025, net income exceeded $10 billion – a figure that caused Circle, the second-largest issuer, to report a net loss of $202 million in the same period. Even an average profit calculator would show how lucrative this structure was in a high-interest environment.

For most of the last three years, this system worked perfectly with macroeconomic reality. While most crypto companies faced operational losses, Tether became a billion-dollar revenue-generating machine, solely through conservative investments in short-term government debt.

The problem of falling yields: an evolving economic scenario

CME FedWatch, however, indicates a different future. By December 2026, there is over a 75% probability that the federal funds rate will fall from the current 3.75–4% to a range of 2.75–3% or 3.25–3.50%. This is significantly lower than the 5% that Tether relied on for its 2024 income.

The mechanics are relentless: lowering yields by one percentage point could reduce Tether’s annual income by at least $15 billion – over 10% of its current net profit. This outlook raises deep questions about the future of its model.

After Jerome Powell’s term ends in 2026, the new Federal Reserve chair may be more inclined to implement faster and deeper rate cuts, following signals from President Donald Trump. At this critical moment, Tether has made a decision that sets it apart from competitors: instead of waiting for income erosion, it is preparing for a new reality.

Gold and Bitcoin: a new reserve diversification strategy

Between Q3 2023 and Q3 2025, Tether’s reserve portfolio underwent a transformation. As of September 30, 2025, the company had accumulated over 100 tons of gold worth about $13 billion and more than 90,000 BTC worth nearly $10 billion. Together, these two categories account for 12–13% of total reserves – a allocation virtually no other stablecoin issuer has. For comparison: Circle holds only 74 bitcoins.

This change was not accidental. The acceleration in gold and Bitcoin allocations coincided with the point when the yield curve stopped signaling further hikes. When the Federal Reserve peaked interest rates in 2023, Tether recognized the signal – it was time to prepare for a cycle transformation.

This strategy is based on a simple yet powerful economic observation: when yields fall, gold usually prospers. This is clearly seen in 2025 – after the Fed cut rates by 50 basis points, gold prices rose over 30% between August and November. A similar pattern was observed during the COVID-19 pandemic, when a 1.5 percentage point rate cut led to a 40% increase in gold prices over the following five months.

Bitcoin exhibits similar macroeconomic patterns. Under easing monetary policy and liquidity expansion, Bitcoin behaves like a high-beta asset. The result? While high rates maximized government bond revenues, allocations in gold and Bitcoin offer growth potential in a low-rate environment.

Risks and questions about security

Although government bonds still make up 63% of Tether’s reserves, increased exposure to Bitcoin and other higher-risk assets – including unsecured loans – has raised concerns among rating agencies. Two weeks ago, S&P Global Ratings downgraded Tether’s ability to maintain the USDT peg to the dollar from level 4 to level 5, citing risks from corporate bonds, precious metals, Bitcoin, and secured loans – which together account for nearly 24% of reserves.

Even more critical for S&P was the observation that Bitcoin makes up about 5.6% of USDT circulation, exceeding 3.9% of the collateral buffer. In other words: reserves are no longer fully capable of absorbing potential declines in value. A significant depreciation of Bitcoin – which has recently occurred – could reduce the buffer between reserves and the backing requirements.

The outlook is essentially twofold. On one hand, Tether’s strategic shift seems economically sensible. As rate cuts materialize – and that’s certain – the machine generating $13 billion in annual income will face pressure. The growth potential of gold and Bitcoin could mitigate some of these losses. On the other hand, any erosion of government bond holdings increases complexity and risk – precisely what rating agencies fear most.

Ultimately, every stablecoin issuer’s mission is to protect the peg to the base currency. Everything else – income, strategy, unrealized gains – becomes secondary. If the peg breaks, the business fails. Tether’s story runs parallel to the coming monetary easing, and every rate decision will be another test of its strategy.