Tether's Reserve Strategy Shift Raises Compliance and Stability Concerns

I am observing that Tether is significantly reducing its holdings of US government bonds, with only $7 billion in Q2 2025 compared to $65 billion in Q1 2025 and $33 billion in Q4 2024. While diversifying into Bitcoin, gold, and corporate investments, their cash equivalents like repos and non-US bonds have decreased by $17 billion. Currently, Tether holds approximately $105.5 billion in US bonds and $24.4 billion in indirect exposure through repos and non-US bonds. This substantial reduction in US government bond acquisitions is unexpected, especially given Tether's prior strong support for the GENIUS Act, which mandates stablecoins to hold US Treasuries as reserves. CEO Paolo Ardoino mentioned over $50 billion in USDT issuance backed by US Treasuries, indicating a strategic alignment with the stablecoin reserve requirements. The shift away from US bonds raises questions about Tether's future compliance with the GENIUS Act. If they continue to diversify away from US Treasuries, they might face regulatory scrutiny or challenges in maintaining the mandated reserves, which could impact their stability and market perception. From an investment perspective, this move suggests a potential restructuring of Tether's reserve strategy, possibly to mitigate risks or adapt to evolving regulatory landscapes. It may also reflect a broader trend in stablecoin management, emphasizing diversification to reduce reliance on US government bonds. Overall, Tether's reduced US bond holdings imply a strategic realignment that could influence its regulatory compliance status, market stability, and investor confidence. Continuous monitoring is essential to assess how this approach impacts their ability to meet reserve obligations and maintain trust in the stablecoin market.