Tether pushes USDT into private credit as defaults climb

Tether is making a high-stakes move into the heart of Wall Street's private credit market, launching a $400 million fund with Fasanara Capital just as defaults and redemptions are mounting across the sector. The new vehicle, StableFund, aims to channel USDT-linked financing into a $3 trillion industry that is already under stress from deteriorating loan performance and growing investor scrutiny.

New ambitions in a stressed market

StableFund's debut signals a shift for Tether, which has long dominated crypto lending but now seeks to extend its reach into real-world business and consumer financing. Fasanara Capital, a London-based asset manager with over $6 billion under management, will oversee the fund's portfolio. Tether's role goes beyond simply providing a stablecoin for settlement: the company will help originate deals, supply treasury infrastructure, and connect its USDT network to new lending opportunities. The fund is structured as an evergreen vehicle, meaning it can continuously raise and deploy capital rather than winding down at a set maturity.

This expansion comes at a time when the private credit market is facing its toughest test in years. According to an August Wall Street Journal analysis, default rates at major publicly traded private credit funds have reached their highest levels since at least 2021. Blue Owl, one of the sector's largest managers, reported a 2.8% default rate in the second quarter-its highest in five years. Investor redemptions are accelerating, and concerns are mounting about the credit quality of heavily indebted borrowers, especially in sectors vulnerable to disruption from artificial intelligence and other technology shifts.

Fund structure and risk questions

StableFund will focus on short-duration, asset-backed loans to small and medium-sized businesses and consumers, as well as trade receivables and supply-chain credit. Fasanara plans to deploy capital across a fintech network spanning more than 60 countries. While Tether and Fasanara have committed $400 million in sponsor capital, they have not disclosed how that amount is split, nor have they detailed the fund's leverage, fee structure, or redemption terms. It remains unclear whether USDT will serve as loan principal, collateral, or simply as a settlement mechanism, and how much financial risk Tether is actually taking on relative to outside investors.

The Financial Stability Board warned in May that private credit has not yet been tested through a prolonged downturn, highlighting risks from weaker borrower quality, high leverage, opaque valuations, and growing links between private funds and traditional financial institutions. The watchdog also flagged the rise of payment-in-kind arrangements and funds offering redemption options as potential sources of stress if market conditions worsen. These vulnerabilities are now front and center as Tether seeks to attract billions in institutional capital to a sector already under pressure.

Market share and institutional capital

Galaxy Research estimated that Tether controlled about 60% of the $23 billion centralized crypto-lending market as of June, with roughly $13.5 billion in outstanding secured loans. StableFund represents an attempt to scale that operation into a much larger asset class, targeting institutional investors who are increasingly focused on credit quality and liquidity. The fund's evergreen structure could appeal to investors seeking flexibility, but the lack of transparency around risk-sharing and redemption mechanics may give some pause-especially as defaults continue to rise.

Private credit's rapid growth has drawn attention from both regulators and market participants. The Financial Stability Board's concerns echo those raised in other sectors where new financial products have outpaced regulatory frameworks. As seen in EgonCoin's earlier breakdown of Wall Street's move to securitize data center power, the intersection of traditional finance and new digital assets is creating complex new risk profiles that are not always well understood by investors or regulators.

Data and outlook

At the end of June, the centralized crypto-lending market stood at $23 billion, with Tether accounting for approximately $13.5 billion in outstanding secured loans, according to Galaxy Research. Blue Owl's 2.8% default rate in Q2 2023 marked a five-year high for the manager, while the Financial Stability Board's May 2023 report highlighted that private credit's vulnerabilities remain largely untested in a sustained downturn. Fasanara Capital manages over $6 billion in assets and plans to deploy StableFund capital across more than 60 countries.

Private credit funds typically offer higher yields than traditional fixed income, but they also carry greater risk from illiquidity, borrower defaults, and limited transparency. Unlike public bond markets, private credit deals are often negotiated directly between lenders and borrowers, with less regulatory oversight and fewer disclosure requirements. As stablecoins like USDT move deeper into these markets, investors and regulators will need to scrutinize not just the returns, but the underlying risks and the mechanisms for absorbing losses when loans go bad.