Tether Holdings Ltd, the issuer of the world’s largest stablecoin, USDT, is investigating lending opportunities for commodities trading companies as it seeks to deploy its substantial profits. This initiative could potentially disrupt an industry that has traditionally relied on banks for credit.
According to sources familiar with the discussions, Tether has engaged in talks with various firms in the commodities sector regarding potential US dollar lending opportunities. These conversations have also included discussions about how USDT can be leveraged in mainstream commodity trades, especially in regions like Venezuela and Russia, where traders often use stablecoins to navigate U.S. sanctions.
Credit lines are vital for commodity trading firms that handle multimillion-dollar shipments of oil, metals, and food globally. While major players like Trafigura Group maintain extensive networks of lenders—with $77 billion in credit lines across 150 institutions as of March—smaller companies frequently struggle to secure necessary funding.
Tether’s offering is appealing because its loans would not be bound by the stringent regulatory conditions that conventional lenders face, potentially expediting payments and transactions. While private credit has begun to establish a foothold in commodity trade finance, Tether claims it has the capital to participate actively. The company reported $5.2 billion in profits for the first half of 2024, according to its latest financial attestation released in July.
Tether CEO Paolo Ardoino confirmed in an interview with Bloomberg News that the company is exploring commodity-related opportunities, emphasizing that these discussions are still in the early stages. “We likely are not going to disclose how much we intend to invest in commodity trading. We are still defining the strategy,” Ardoino stated. He added that he sees “massive” future opportunities in this space.
Typically, banks extend credit to traders for purchasing and shipping cargoes in commodity trade financing. This practice has a long history as it is generally viewed as a secure business, backed by highly liquid collateral. However, new investors looking to enter the sector often face challenges: top traders usually secure financing from traditional banks at low rates, while those pursuing higher returns have sometimes faced setbacks by backing less reliable traders engaged in complex transactions in challenging markets.
The commodity trading industry has experienced turmoil in recent years, particularly following Russia’s invasion of Ukraine, which caused significant price fluctuations and strained liquidity but also led to record profits for some players. The war has underscored the sector’s dependence on the U.S. dollar, which has been used as a tool for the U.S. government to impose sanctions on natural resource exports, creating a demand for unregulated financing options and the use of stablecoins.
Several Russian metals producers have begun utilizing USDT for cross-border transactions with clients and suppliers, while Venezuela’s state-run oil company PDVSA has also accepted the token for payments related to oil shipments, as previously reported.
To further develop trade finance opportunities, Tether has assembled a dedicated team and had representatives at industry events in September, including a commodity finance conference in Geneva and LME Week in London. Tether Investments, the company’s investment arm, reviews hundreds of pitches each month, focusing on sectors like alternative financial infrastructure for emerging markets, artificial intelligence, and biotech.
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