## Capital Injection Needs: Tether Requires an Additional $4.5 Billion to Meet Banking Standards

### Tether operates like an unregulated bank

The public often views Tether as a purely custodial company, but the reality is much more complex. Tether manages a digital deposit circle – depositors send funds, Tether issues USDT tokens, and invests these funds into a diversified asset portfolio. Strictly speaking, this is not passive storage but **active portfolio management**, aiming to profit from the interest rate spread between assets and liabilities.

This business model is what makes Tether more like a bank than a payment service company. And like any bank, Tether must have sufficient capital to absorb risks.

### Applying Basel Framework: Calculating RWAs (risk-weighted assets)

The Basel capital framework – the global standard for banks – requires three main elements:

**1. Risk Type Identification**
- **Credit risk** (80-90% of assets are risk-weighted): The likelihood that a counterparty cannot pay
- **Market risk** (2-5%): Asset value fluctuations, especially when liabilities are USD-denominated
- **Operational risk**: Fraud, system failures, legal losses

**2. Capital Definition**
Equity (Capital) is the most expensive form. Basel distinguishes:
- CET1 (Common Equity Tier 1): Pure economic capital
- Tier 1: Includes hybrid capital instruments
- **Total Capital (Total Capital)**: The final buffer to absorb losses

**3. Minimum Ratio Requirements**
- CET1: at least 4.5% of RWAs
- Tier 1: at least 6.0% of RWAs
- **Total Capital: at least 8.0% of RWAs**

Additional buffers include: Capital Conservation Buffer (2.5%), Countercyclical Buffer (0-2.5%), G-SIB Surcharge (1-3.5%), with large banks practically maintaining **10-15%+ total capital**. Data for 2024 shows major global banks hold an average of **14.5% CET1** and **17.5-18.5% total capital**.

### Tether’s Balance Sheet: RWA Analysis

By the end of Q1 2025, Tether issued **$174.5 billion** in USDT tokens, holding **$181.2 billion** in assets – a reserve surplus of approximately **$6.8 billion**.

Portfolio structure:
- **77%**: Money market instruments and cash equivalents (risk weights: 0-2%)
- **13%**: Physical commodities and digital assets (Bitcoin, gold)
- **10%**: Other loans and investments

**Bitcoin Handling is Key**

Basel applies a risk weight of **1,250%** for Bitcoin – meaning a 100% reserve requirement. But this is overly conservative for a stablecoin issuer operating in the crypto market.

Bitcoin’s annual volatility from 2024 ranges **45-70%**, higher than gold (**12-15%**). A more reasonable approach is to hold capital buffers to withstand **30-50%** volatility – well within historical data and corresponding to risk weights of **300-400%**, higher than gold (~150-200%) but lower than the “full 100% reserve” requirement.

**Opaque Lending Book**

Tether does not disclose details about its loans: borrowers, terms, collateral. The safest assumption is to apply **100% risk weight**, though this remains a loose assumption.

**Result: RWAs could range from $62.3 billion to $175.3 billion** – depending on how the commodity portfolio is handled.

### Calculating Tether’s Total Capital Ratio (TCR)

With a reserve surplus of **$6.8 billion**, Tether’s TCR could range from **3.87% to 10.89%** depending on assumptions.

**Under Basic Standards**: Assuming a reasonable Bitcoin buffer of **30-50% volatility**, Tether meets the minimum **8% RWAs** requirement of Basel.

**Under Stricter Market Standards**: Compared to large banks maintaining **14-18% total capital**, Tether is unimpressive. **Tether needs an additional approximately $4.5 billion in capital** to reach a 12% TCR – a moderate but safer standard.

If applying a full reserve requirement for Bitcoin (100% reserve), the shortfall could reach **$12.5-25 billion** – which I consider too strict and unrealistic.

( Critical View: Tether Group Capital

Tether argues that at the group level, they have large retained earnings buffers. By the end of 2024, Tether reported annual net profits exceeding **$13 billion**, with group equity surpassing **$20 billion**. Recent Q3 2025 reports show profits from the start of the year exceeding **$10 billion**.

**However, a key warning**: Legally, these profits and the group’s private investments in energy projects, bitcoin mining, AI, data infrastructure... ) **are not part of the USDT segregated reserve**. Tether can inject capital when needed, but there is no legal obligation to do so. Considering all group profits as managed capital for USDT holders is overly optimistic.

( Conclusion

From a purely legal perspective, Tether is close to meeting Basel’s minimum requirements. But compared to higher market standards )large banks###, **Tether needs an additional approximately $4.5 billion in capital** to maintain its current USDT scale with a moderate safety margin. This is not a crisis, but a sign that although Tether operates stably now, there is still a gap compared to a true bank.