Is USDT safe? Inside Hayes vs Butterfill’s battle over Tether’s solvency

Tether’s USDT has continued to maintain its dual identity in the crypto world: the most dominant stablecoin and the most scrutinized.

Despite persistent reserve controversy, its utility has accelerated, painting a portrait of market dominance that seems impenetrable.

Data from November showed that USDT recorded a staggering on-chain transaction volume of $719.83 billion, decisively overshadowing Circle’s USDC at $493.96 billion.

James Butterfill defends Tether amidst Arthur Hayes’ warning

Simultaneously, questions about its reserves persist.

Yet, CoinShares’ Head of Research, James Butterfill, recently pushed back on market anxiety.

Pointing to Tether’s latest attestation, which showed a strong surplus of assets over liabilities, Butterfill argued that solvency concerns look misplaced and don’t signal any systemic vulnerability.

But the real story tracks why Tether’s functional dominance keeps accelerating even as debates around its financial composition intensify.

For context, the central conflict around Tether’s unrivaled utility versus its recurring risk flared again after BitMEX Co-Founder Arthur Hayes issued a direct solvency warning.

Hayes’s argument hinged on Tether’s strategic, yet volatile, reserve allocations. He suggested the company is running an “interest rate trade” by increasing exposure to risk-on assets like Bitcoin and gold.

According to him, a sharp 30% decline in the value of these two assets could theoretically wipe out Tether’s entire equity buffer, rendering the stablecoin “theoretically insolvent.”

Tether’s resilience

The most recent report confirmed the existence of a substantial cushion designed to absorb such volatility. It was approximately $181 billion in total reserves against about $174.45 billion in liabilities.

This results in a headline surplus, or equity buffer, of nearly $6.55 billion.

Tether’s Q3 disclosures showed most reserves sitting in liquid assets like U.S. Treasuries worth roughly $135 billion. Its remaining exposure supported Hayes’s concern about the reserve mix.

The company held about $12.9 billion in gold and $9.9 billion in Bitcoin. These were the exact positions Hayes flagged as potential volatility sources.

CoinShares noted the risk from these holdings but said the large reserve-to-liability gap offsets it. They added that Tether’s record profitability this year further strengthens that view.

Looking ahead

The market consistently prioritizes USDT’s unmatched utility and dominance, evident in its $719 billion monthly volume, over the regulatory and theoretical risks tied to its reserves.

Tether faces its real long-term risk not from a single 30% asset drop, but from a mass panic that forces it to meet $34 billion in redemptions without enough cash or equivalents.

Until a fully transparent, fully liquid competitor matches Tether’s functional dominance in global crypto settlement, USDT will continue to rule as the unshakeable king.

Final Thoughts

• Solvency fears persist, but Tether’s latest attestation showed a surplus of $181 billion in assets vs. $174.45 billion in liabilities.
• Unless a fully transparent and liquid competitor appears, Tether will remain crypto’s dominant stablecoin, defying regulators and traditional finance norms.