Why Tether, the crypto giant, bought a South American agriculture company

Tether, world's biggest digital assets company and crypto powerhouse, has leveraged its recent acquisition to make a strategic move for the multi-trillion dollars a year commodities trade. The company wants to integrate its stablecoin - a digital currency pegged at the U.S. Dollar that is traded on crypto exchanges - into the core markets where raw materials and commodities are bought and sold. It promises to reduce cross border payment costs from days to mere seconds. Adecoagro is a New York-listed company that produces dairy products in Argentina, rice and sugar in Brazil and rice and ethanol in Uruguay. In April, it agreed to sell 70% its shares to Tether for a price of around $600,000,000.

The rapidly expanding crypto industry is also investing in brick-and mortar businesses and physical assets.

Joe Sticco is the chief executive officer of Cryptex Finance. The company created indexes which mirror cryptocurrency market capitalizations.

He stated that adding income-generating assets such as farmland and food processing plants could help Tether strengthen its balance sheet, while also providing a hedge against the inflation.

Tether's primary business segment is USDT. This digital currency is backed primarily by U.S. Treasury bonds. USDT, launched in 2014, has seen a sharp increase in trading volume due to the growing interest in cryptocurrency.

This is a method of making payments outside the traditional global financial systems. USDT, unlike bitcoin or other cryptocurrencies like ethereum, is designed to track U.S. dollars. This is the dominant currency in global trade.

TRADING IN COMMODITIES

Tether issued $143 billion USDT in USDT to date, and in its first-quarter report, it stated that it had $149 billion of reserves, including $120 trillion in U.S. Treasuries.

"Tether wants a greater use of its stablecoin for cross-border payments. I believe this will grow a great deal in the financial markets, especially in commodities markets," Marcos Viriato said, chief executive officer of Parfin. Parfin is a South American firm that provides technology to facilitate cryptocurrency transactions.

Payments through conventional channels can take up to three days if a Brazilian company sells goods to someone in Bolivia. "With USDT, it would only take seconds," said he. He added that the operation costs would be lower.

Parfin is collaborating with Banco Bradesco - Brazil's third biggest bank - to launch a pilot program where Brazilian commodity exporters can sell their products overseas and receive payment in stablecoins. Bradesco uses Parfin’s infrastructure to convert USDT into local currency which is then deposited in the exporters’ accounts. Tether prioritizes investments in companies that will expand our distribution network, and improve the real-world utility for stablecoins. Adecoagro is a prime example.

The company stated that it is evaluating how stablecoins can enhance the efficiency and liquidity of commodity trading, along with Adecoagro management and other experts in the industry.

Tether announced late last year it had funded a physical crude transaction between a major oil firm and a commodities broker, which was settled with USDTs. This was the first time that a deal of this nature was made.

Reports from earlier in the year suggested that Russia used cryptocurrencies to avoid Western sanctions when trading oil with China and India. Venezuela has also tried to use digital currency to trade.

SUGAR TOKEN

Gracy Chen of Bitget, the chief executive officer of the crypto exchange, says that tokenization of commodities is another option for Tether to enter the agricultural world.

Tether has a gold coin that is backed up by gold reserves and reflects the value of gold. Chen suggested that it could now look into a corn or sugar token which could be used as collateral for pre-harvest finance or to hedge.

She said that "in effect, they're turning farmland and sugar mills into programmable instruments of finance." Tether stated that it believes there is "significant potential" in exploring tokenization of real assets, such as agricultural commodities. However, it emphasized that no plans were currently underway to launch a corn or sugar token.

For now, however, the crypto firm will use its purchase for another application. Tether announced that it would use renewable energy produced in South America by Adecoagro, including electricity from sugarcane mills to power its bitcoin mining operation.

(source: Reuters)