Tether's Big Wager on AI Tech Through Cloud GPUs

Tether’s Big Wager on AI Tech Through Cloud GPUs

Updated: 21 September 2023

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The crypto firm Tether Group, most known for its $86.5 billion stablecoin Tether, has splashed out $420 million to buy 10,000 H100 GPUs from Nvidia. These graphics processing units are a hot ticket item among companies specializing in artificial intelligence (AI), often used for heavy-duty data processing. As part of this complex deal, Tether will also acquire a 20% share of the contentious German bitcoin miner, Northern Data, which plans to lease these GPUs to AI-focused startups.

Interestingly, Tether’s considerable investment in GPU technology is channeled through an Irish shell company named Damoon (Pun most likely intended). In return, Northern Data will own a 70% stake in this shell company, with an unclear cost structure for potentially acquiring the remaining 30%. While the deal is still not finalized, the unique structure led to some confusion, even Northern Data’s CEO Aroosh Thillainathan had a hard time detailing why the transaction was arranged this way. Due to these complicated structures, on Twitter/X, there have been speculations as to the legality and motives of these moves. With the GPUs purchase, the motives have now started to become clear.

#Tether Invests $420 Million in #AI Chips and #Bitcoin Mining Firm https://t.co/QMVVzzqg9Q

— AZCoin News (@azcoinnews) September 21, 2023

This massive purchase by Tether could potentially elevate Northern Data to become the largest cloud GPU operator in Europe, outside of industry bigwigs like Amazon and Oracle. Thillainathan was thrilled about this, pointing out that this was a golden chance to get hold of 2% of the highly sought-after H100 GPUs, especially since demand is currently far outpacing supply.

What’s worth noting is that Northern Data isn’t the first company to repurpose their GPUs for AI applications. Previously, several crypto miners, such as Coreweave and Hive, have transitioned from cryptocurrency mining to renting out their GPUs to AI ventures. In fact, Nvidia’s CEO Jensen Huang had mentioned in an earnings call that there is a growing trend of businesses turning into specialized GPU cloud service providers.

An Incredibly High Investment

The scale of Tether’s investment is astonishing and exceeds even the budget allocated by some countries. For instance, the British government earmarked $120 million for GPUs, while Saudi Arabia reportedly purchased around 3,000 H100s from Nvidia. It’s a massive deal by any standards.

Northern Data has a history of interesting transactions and lawsuits. The company acquired older GPUs in a cash-and-share deal worth $430 million from a block.one-owned company. The German company has also been scrutinized for financial inconsistencies, and it has faced legal complaints. However, Northern Data claims all such issues have been resolved.

Northern Data became what it is today after merging with a Bitcoin mining company founded by Thillainathan. Though its U.S. operations were sold for $651 million, it has found itself entangled in various legal battles including a lawsuit from Riot Blockchain and two other lawsuits from GMO and SBI for contract breach and fraud, respectively.

Tether itself is no stranger to controversy. Although the company maintains that its stablecoin is fully backed by U.S. dollars, it was fined $21 million last year for making misleading claims about its financials. Currently, Tether holds over $2.3 billion in undisclosed “other investments” and saw its cash holdings plummet 98% to just $90.8 million recently. Despite this, the company boasted of over $1 billion in profits last quarter alone and announced a share buyback worth $115 million.

It was also in the news recently due to temporary depegging events, the most drastic of it being on August 7 of this year. Tether is charging a “redemption fee” for redeeming its tokens, which is a “USDT-specific problem” and a strategy designed to minimize redemptions.

All in all, the massive GPU investment by Tether not only highlights the rising demand for these chips in the AI sector but also introduces a new layer of complexity and intrigue into the ever-evolving crypto landscape.