Tether Q2 Profit Reaches $1.5B as Excess Reserves Drop to $4.1B

Written by Andrew Folkler

Compiled by Chopper, Foresight News

According to the latest report from audit firm BDO, Tether generated $1.5 billion in operating net profit in the second quarter of 2026. The stablecoin issuer has total assets of $187.75 billion and total liabilities of $183.64 billion. USDT continues to hold over 60% of the global stablecoin market share. Based on key metrics, this quarter was exceptional in performance.

However, beneath the impressive figures, Tether’s balance sheet has undergone structural changes worthy of close scrutiny. The so-called excess reserves—the safety cushion between the total value of Tether’s assets and its liabilities to USDT holders—plummeted from $8.23 billion to $4.11 billion in a single quarter. This safety buffer, built up over many years, has halved in just three months. A company that earned $1.5 billion in profit ended the quarter with only half the reserve cushion it had at the beginning.

To understand this phenomenon, one must consider gold, Bitcoin, secured lending, and a fundamental question: What should the balance sheet of a stablecoin issuer look like? Tether’s second-quarter results reveal that the company holds dual roles: it is both the foundational infrastructure for global U.S. dollar circulation and an ambitious financial conglomerate seeking diversification—two positions that involve trade-offs.

The calculation for the decline in reserve size is straightforward. Tether began the first quarter with $8.23 billion in excess reserves and earned $1.5 billion during the quarter. Without any other changes, the theoretical buffer should have increased to approximately $9.7 billion. However, the actual figure dropped to $4.11 billion, indicating that roughly $5.6 billion was consumed from the balance sheet through unrealized losses, capital contributions, operating expenses, and other factors.

The two asset classes with the greatest impact are gold and Bitcoin. This quarter, Tether increased its gold holdings by 14 metric tons, raising its total holdings from 132.2 tons to 146.2 tons. However, during the same period, the price of gold fell by approximately 15%, settling slightly above $4,000 per ounce. As a result, despite continued accumulation, the market value of Tether’s gold holdings declined from $19.84 billion to $18.84 billion, resulting in an unrealized paper loss of approximately $1 billion on gold.

Bitcoin holdings show a similar trend. Tether increased its Bitcoin holdings by 1,796 BTC, bringing the total to 98,933 BTC. However, the Bitcoin valuation used in the audit report dropped from $68,200 to $58,600, causing the market value of Bitcoin holdings to decline from $6.62 billion to $5.8 billion, resulting in a loss of approximately $820 million.

Just gold and Bitcoin alone caused Tether to incur approximately $1.8 billion in unrealized losses in the second quarter. When combined with additional funds allocated to gold and Bitcoin purchases, the construction of the USAT stablecoin infrastructure, and various operational costs, the $5.6 billion gap between expected and actual reserve levels becomes understandable. However, explainable does not mean the risk is under control.

The contraction of secured loan volumes adds further uncertainty. Tether’s outstanding secured loan balance decreased by approximately $2.38 billion, a 15% decline. Generally, reducing secured loans improves reserve quality by replacing counterparty credit risk with directly held assets. However, this reduction occurred during a quarter when reserve buffers were already under pressure from market value losses, raising speculation that some loan reductions may not have been voluntary. Tether has not disclosed information about borrowers or the corresponding collateral, leaving analysts to speculate whether the loans were repaid at maturity, recalled early, or actively phased down.

As a result, the current balance sheet has changed significantly compared to three months ago. At the end of the first quarter, Tether had $8.23 billion in excess reserves, demonstrating that USDT holders enjoyed a substantial safety cushion beyond the full 1:1 reserve backing. By the end of the second quarter, despite continued corporate profitability, this safety buffer had been cut in half. Long-term trends are more concerning than data points from a single quarter.

Over the past three years, Tether has significantly adjusted its reserve strategy, shifting the majority of its reserve assets toward U.S. Treasuries and short-term government bonds. This move responds to years of external concerns regarding reserve transparency and asset quality. The Treasury portfolio now serves as the core source of Tether’s operating profits and underpins its claim that USDT is fully backed by high-quality, highly liquid assets.

At the same time, Tether has continued to build substantial positions in gold and Bitcoin. These assets do not generate interest income and are subject to significant price volatility. As of the end of the second quarter, Tether held approximately $18.84 billion in gold and $5.8 billion in Bitcoin, totaling $24.6 billion—about 13% of its total assets.

A company whose core obligation is to maintain a 1:1 peg to the U.S. dollar inherently faces a structural contradiction by allocating 13% of its reserves to highly volatile non-dollar assets. When gold and Bitcoin rise, the excess reserve buffer expands, further increasing Tether’s over-collateralization; but when prices fall—as occurred in the second quarter—even with ongoing core business profitability, the safety cushion rapidly shrinks.

The issue is whether Tether’s reserve strategy serves the stablecoin business itself or the broader corporate goals of Tether as a company. A pure stablecoin issuer would allocate 100% of reserves to short-term U.S. dollar assets to maximize liquidity and minimize volatility risk. By holding gold and Bitcoin, Tether signals a different objective: generating long-term asset appreciation for its shareholders beyond the stablecoin business.

Tether's quarterly profit of $1.5 billion hinges almost entirely on one variable: the yield on short-term U.S. Treasury securities. The company’s business model involves investing USDT users' funds in short-term Treasury bills and repurchase markets. In a high-interest-rate environment, Tether’s profitability is exceptionally strong; when rates decline, profits shrink accordingly.

The current Federal Reserve policy rate level has made Tether one of the most profitable financial institutions per capita globally. Reports indicate the company employs fewer than 100 people, translating to over $60 million in annualized revenue per person—far exceeding top tech firms. However, this profit model lacks a moat and is highly dependent on macroeconomic conditions—specifically, high U.S. interest rates—which Tether cannot control. The vast majority of economists predict interest rates will enter a downward cycle over the next 12 to 24 months.

Tether CEO Paolo Ardoino stated externally that the Q2 results demonstrated the company's resilience. In an official statement, he said: “Despite extreme market volatility, USDT remains fully backed by reserves, and our assets still exceed liabilities by $4.11 billion.” On a literal level, this statement is accurate. However, “fully backed reserves” and “having sufficient safety buffers” represent two different standards, and the Q2 data clearly reveals the gap between them.

If the Federal Reserve cuts interest rates by 200 basis points over the next year, and assuming the total circulating supply of USDT remains unchanged, Tether’s annual profit would decline from approximately $6 billion to $3 billion. While $3 billion remains a massive profit, the trend shift is critical. Sustained profit erosion will make it more difficult to rebuild reserve buffers, fund various expansion initiatives, and maintain holdings in gold and bitcoin. The second quarter has already demonstrated that during corrections in commodity and crypto asset prices, billions of dollars in unrealized losses can materialize within just a single quarter.

The 2028 compliance deadline set by the GENIUS Act exacerbates interest rate pressures alongside regulatory strain. If Tether needs to restructure its reserves and adjust its business model to meet U.S. stablecoin regulations, the timing of compliance-related costs coincides with a period of declining interest rates and narrowing profits.

In March 2026, Tether announced the hiring of KPMG to conduct its first full financial audit. For years, Tether had faced criticism for relying solely on smaller accounting firms to issue quarterly reserve attestation reports, lacking a comprehensive audit from one of the Big Four firms; thus, this partnership was widely regarded as a milestone for the industry.

Five months have passed, and KPMG’s audit work remains incomplete. Tether’s Q2 reserve attestation report was once again issued by its long-standing partner, BDO. The Q2 announcement merely mentioned in passing that “the Big Four audit work is progressing,” without providing a completion timeline, interim findings, or schedule.

There is a fundamental difference between a attestation report and a full audit. An attestation report only verifies whether the financial data reported by a company at a specific point in time is accurate; an audit comprehensively reviews the financial statements, internal control systems, and accounting methods throughout the entire reporting period. This distinction is critical: an attestation report can confirm that Tether held $187.75 billion in assets as of June 30, but it cannot verify how those assets were managed, valued, or how funds moved during the preceding 90 days.

An audit delay does not necessarily indicate risk. Big Four accounting firms typically require 12 to 18 months to audit complex financial institutions. However, the absence of a clear timeline allows uncertainty to accumulate. Competitor Circle, issuer of USDC, regularly publishes audited financial statements. KPMG’s prolonged audit, with no public updates, risks undermining Tether’s reputation—turning what was meant to bolster market confidence into a potential liability. If the final audit opinion is unqualified, the lengthy wait may be forgotten by the market; but if the audit uncovers material issues or issues a qualified opinion, the five-month information vacuum could be viewed as a warning signal that the market should have heeded.

Tether holds a 60% market share and is strongly positioned, but not invincible. USDC, issued by Circle, has been steadily growing and now accounts for approximately 25% of the stablecoin market. Circle completed its IPO in early 2026 and, as a publicly traded company, regularly discloses comprehensive financial information. For institutional clients with audit and compliance requirements, Circle has a clear advantage in transparency.

The emerging regulatory framework in the United States could further reshape the competitive landscape. Under the current version of the GENIUS Act, stablecoin issuers targeting U.S. users must meet a range of requirements, including reserve standards, disclosure obligations, and compliance measures. Since Tether is registered in El Salvador, its offshore structure would likely require significant restructuring to comply with these regulatory requirements.

Meanwhile, new participants continue to enter the industry. PayPal’s PYUSD has already captured a portion of the market share; institutions such as JPMorgan Chase and Bank of America have also launched or announced their own proprietary stablecoin products. A common characteristic of these competitors is that their operations operate within established regulatory frameworks. As stablecoin regulations become more refined, this advantage is likely to become a decisive factor.

Tether has chosen to expand beyond the stablecoin space by investing in Bitcoin mining, artificial intelligence infrastructure, and telecommunications, while also launching USAT, a stablecoin targeted at the U.S. market, and recently上线 Celo as its second mainnet. While this diversified expansion may create long-term value, it continues to drain funds that could otherwise be used to strengthen reserve buffers. Even as its reserves shrank in the second quarter, the company continued to invest heavily in its expansion efforts.

The private structure introduces another layer of complexity. Circle is accountable to public shareholders, whereas Tether faces minimal external constraints. A small group of executives and shareholders near the core of the company decide on fund allocation, including investments of nearly $25 billion in gold and Bitcoin, without the external oversight typically required of public company boards. If this were a public company, such a drastic reduction in reserve buffers would likely have been discussed by the board long before the risk materialized.

In the second quarter, the circulating supply of USDT increased by only $446 million, the lowest quarterly growth rate in over two years. From 2024 to early 2025, USDT’s quarterly circulating supply often surged by tens of billions of dollars; now, growth has nearly stalled, which is noteworthy. Meanwhile, Tether announced that it added over 30 million new users this quarter, continuing its expansion in user base.

The disconnect between user growth and circulating supply growth indicates that new USDT users are making smaller average transactions, using the token primarily for payments and transfers rather than long-term holding and value preservation. This aligns with Tether’s public narrative: serving unbanked populations and providing a dollar gateway for emerging markets. However, this also suggests that, under current interest rates and market conditions, the total circulating supply of USDT—Tether’s foundational revenue base—may be nearing its peak.

Tether's addition of 30 million users represents a significant expansion of its reach, particularly in regions with weak traditional banking infrastructure and persistently depreciating local currencies. The company is actively pursuing partnerships in Africa, Latin America, and Southeast Asia with the goal of establishing USDT as a daily payment tool. The memorandum of understanding signed by Tether with the Nairobi Securities Exchange on July 28 is the latest step in this strategy. However, payment transaction volume and the total circulating supply of stablecoins are two distinct metrics. A user receiving $50 in USDT and spending it entirely within hours contributes to transaction volume but does not drive growth in the circulating supply—the key driver of revenue for Tether.

The growth rate of circulating supply is slowing, coinciding with intensified competition in the institutional market for USDC. Circle’s public listing has brought greater transparency, and ongoing U.S. legislation for stablecoins is further accelerating this trend, potentially drawing institutional funds previously favoring USDT toward USDC or other emerging stablecoins. Tether maintains an untouchable lead in retail markets and payment channels in emerging economies, but the additional capital driving growth in total circulation is increasingly coming from user groups with lower average holdings.

If the circulation growth of USDT stalls, combined with a持续 shrinking reserve buffer, Tether’s room for expansion will continue to narrow. Companies rely on strong operational profits to rebuild reserves, with profits heavily dependent on a high-interest-rate environment and sustained circulation growth. The market generally expects interest rates to decline, and circulation growth has already slowed, making the reserve buffer the key variable absorbing various risk shocks.

A $4.111 billion excess reserve buffer represents only about 2.2% of the total USDT supply. This safety margin is insufficient to support up to $184.6 billion in redemption obligations, especially given that 13% of reserve assets are highly volatile. At the end of the first quarter, a record $8.23 billion buffer provided a 4.5% cushion. The buffer halving in just one quarter demonstrates how volatile market conditions can rapidly erode years of accumulated safety margins.