(Bloomberg) -- Tether Holdings Ltd is exploring lending to commodities trading companies as it looks at ways to deploy its billions of dollars in profits, a move that could shake up an industry typically reliant on traditional banks for credit.
The crypto company — which is the issuer of the world’s largest stablecoin, USDT — has discussed US dollar lending opportunities with several firms across the credit-hungry sector, according to people familiar with the matter who asked not to be identified discussing private conversations.
Tether’s meetings with traders have also included conversations about how its stablecoin, which has already gained traction as a way for traders and producers to avoid the dollar in countries like Venezuela and Russia that are subject to myriad US sanctions, might be used in more mainstream commodity trades, the people said.
Credit lines are the lifeblood of the commodity trading firms that move multimillion dollar cargoes of oil, metals and food around the world. While industry heavyweights have vast networks of lenders to tap — Trafigura Group had $77 billion of credit lines with about 150 institutions at the end of March — smaller players can struggle to access the funds they need to keep shipments moving.
Tether’s pitch is particularly attractive because its funding would not be subject to the same stringent regulatory conditions as traditional lenders, potentially speeding up payments and trades, some of the people said.
Private credit has been making some inroads into commodity trade finance, and Tether — which does not provide audited financial results — says it has the capital required to participate. In its most recent financial attestation, published in July, Tether reported $5.2 billion in profits for the first half of 2024.
In an interview with Bloomberg News, Tether Chief Executive Officer Paolo Ardoino confirmed the company is exploring opportunities in commodities, and said those explorations are “in 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 said.
“We are interested in exploring different commodity trading possibilities,” he said, adding that he believed opportunities here would be “massive in the future.”
In most commodity trade financing, banks agree to give traders a set amount of credit for purchasing and shipping cargoes. Lending against commodities is one of the oldest lines of business for traditional banks, in part because it has long been a relatively safe bet secured by highly-liquid collateral.
Breaking In
Still, new investors trying to break into the commodity trade finance sector have often found themselves caught in a dilemma: the top traders doing straightforward business typically are able to access financing from traditional banks at extremely low rates, while investors seeking juicier returns have been burnt at times, after backing less-creditworthy traders doing more complex trades in more difficult parts of the world.
A slew of high-profile blowups, collapses, frauds and scandals in recent years has rattled confidence in the sector, and some of the industry’s biggest lenders pulled back from financing the trade in natural resources.
The commodity trading industry is emerging from a tumultuous few years, after Russia’s full-scale invasion of Ukraine resulted in wild price swings that strained liquidity across the sector but ultimately helped generate record profits.
The war has also highlighted the commodity sector’s reliance on the dollar, providing a tool for the US government to target natural resource exports with sanctions, which in turn has created an incentive for unregulated financing and the use of stablecoins to facilitate trade.
Read: Russian Exporters Fear Cash Crunch as Sanctions Delay Payments
Enter USDT: At least two top Russian metals producers have turned to the stablecoin to settle cross border transactions with clients and suppliers, Bloomberg News reported previously. And Venezuela’s state-run oil firm PDVSA has been using the token to accept payments for oil shipments, according to the Wall Street Journal.
Tether has hired a team to develop trade finance opportunities, and some of its executives were present at two industry gatherings in September — a commodity finance industry event in Geneva and LME Week in London — according to people who attended the events and asked not to be identified.
Tether Investments, the company’s investment arm, evaluates hundreds of pitches each month, with a focus on areas such as alternative financial infrastructure for emerging markets, artificial intelligence and biotech.
Read: Tether to Invest More Than $1 Billion in Deals Over Next Year
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