Tether needs an additional $4.5 billion in capital: analysis of the solvency ratio according to Basel standards

The real issue is not “solvable or insolvent,” but the capital structure

The recurring debate about Tether’s solvency often boils down to a simplistic question: does the platform have enough reserves? In reality, the correct question requires a more sophisticated understanding of the financial institutions’ capital structure. For regulated banks, solvency is not a simple arithmetic calculation of assets versus liabilities, but a statistical assessment of the relationship between the overall risk profile of the balance sheet and the capacity to absorb losses.

Although not a formally regulated financial institution, Tether operates in practice like an unregulated bank: it issues on-demand digital deposit instruments (the $USDT tokens), circulates them in crypto markets, and simultaneously invests the resulting liabilities in a diversified portfolio of assets, profiting from the spread between yields and the nearly zero management costs.

To assess whether Tether has sufficient capital, a valuation framework consistent with internationally recognized standards must be applied, rather than inventing a new ad hoc one.

The Basel framework: how banks calculate minimum capital

Regulatory authorities require banks to maintain a minimum capital ratio relative to risk-weighted assets (RWA). This framework, known as the Basel Capital Framework, considers three fundamental types of risk that must be reflected in the balance sheet:

Credit risk: the probability that a borrower fails to fully meet their obligations. Typically accounts for 80-90% of the RWA of large international banks.

Market risk: the possibility that the value of assets fluctuates unfavorably, even in the absence of credit issues. For Tether, this is particularly relevant given its significant Bitcoin and gold holdings, while liabilities are denominated in dollars. The annualized volatility of Bitcoin in recent years has ranged between 45% and 70%, much higher than gold (12-15%).

Operational risk: risks arising from business activities—fraud, system errors, legal disputes.

Under the Basel III framework, banks must maintain minimum capital ratios such as:

• Common Equity Tier 1 (CET1): 4.5% of RWA
• Total Capital: 8.0% of RWA

In normal market conditions, large international banks typically hold ratios well above these minima: on average 14.5% for CET1 and between 17.5% and 18.5% for Total Capital.

Tether’s balance sheet under Basel’s lens

As of the first quarter of 2025, Tether has issued approximately 174.5 billion dollars in digital tokens, primarily dollar-pegged stablecoins. To support these redemption rights, Tether holds about 181.2 billion dollars in assets. Excess reserves amount to roughly 6.8 billion dollars.

The asset composition is as follows:

• 77% invested in money market instruments and cash equivalents in USD: these assets require minimal or no risk weighting under Basel standards.
• 13% invested in physical and digital assets, including Bitcoin (with Bitcoin trading around 91.08K according to recent data) and gold.
• Remaining: loans and other investments not detailed in disclosures.

For Bitcoin, Basel’s more stringent standards assign a risk weight up to 1,250%, which would imply a nearly 1:1 capital deduction. However, this interpretation is overly conservative. A more consistent approach is to consider Bitcoin as a digital asset with a market risk profile similar to gold, but with three times the volatility. This would lead to a risk weight around 300-750% for Bitcoin, significantly lower but still substantial.

Based on these calculations, Tether’s RWA could range between 62.3 billion and 175.3 billion dollars, depending on the assumptions applied to the digital asset portfolio.

Tether’s Total Capital Ratio: insufficient compared to benchmarks

Tether’s (TCR), calculated as excess reserves divided by RWA, ranges between 10.89% and 3.87% under different stress assumptions.

Assuming Bitcoin requires a capital buffer sufficient to cover a 30-50% price fluctuation—an interval fully consistent with observed historical volatility—Tether’s TCR would be roughly in line with Basel’s regulatory minimum (8%).

However, compared to market benchmarks, the result is less satisfactory. Well-capitalized large banks maintain ratios between 17.5% and 18.5%. Applying this higher standard, Tether would need approximately 4.5 billion dollars in additional capital to sustain its current $USDT issuance volume.

If the more severe and punitive interpretation for Bitcoin is applied, the deficit could rise between 12.5 and 25 billion dollars—but this scenario is considered overly conservative and disproportionate to actual prudence needs.

Tether’s replication: retained earnings and group equity

When this issue is raised, Tether usually responds with a structural argument: at the group level, the company has a significant buffer of retained earnings. The figures are indeed notable:

• At the end of 2024, Tether reported a net profit exceeding 13 billion dollars.
• The group’s consolidated equity exceeds 20 billion dollars.
• The Q3 2025 audit shows profits for the year already over 10 billion dollars.

However, the technical counter-argument remains important: strictly speaking, these undistributed earnings cannot be classified as regulatory capital of $USDT holders. They are set aside at the group level and outside the segregated reserves designated for the stablecoin. Although Tether could theoretically transfer these funds to the issuing entity if necessary, there is no binding legal obligation to do so.

For a rigorous assessment of disclosure according to international standards, the entire group balance sheet must be examined, including investments in renewable energy projects, Bitcoin mining, artificial intelligence, data infrastructure, telecommunications, education, land ownership, mining, and gold concessions. The liquidity and performance of these risky assets, as well as Tether’s willingness to sacrifice them in a crisis to protect token holders, will determine the fair value of the actual available capital buffer.

Conclusion: the role of transparency in reserves

The issue with Tether is not simply whether it is “solvent” or “insolvent.” It is rather a matter of structural transparency and the availability of a clear disclosure framework comparable to regulated financial institutions. Without disclosure equivalent to Basel’s Pillar III, $E0@holders remain in an asymmetric information position, while analysts can only make approximate hypotheses about reserve composition and actual risk profile.

Regarding the additional 4.5 billion dollars of capital: this represents the scenario in which Tether aims to align with the benchmarks of best international banking practices, not just regulatory minima. It is a measure of the gap between a minimalistic structure and a solid capital architecture. The decision to bridge this gap or not remains, in the absence of regulation, a discretionary choice by Tether itself.