Tether Holdings Ltd. is one possible target that may rock the cryptocurrency industry to its foundation as U.S. regulators and prosecutors have been stepping up their scrutiny of these companies.
With a market valuation of almost $120 billion, Tether is the third-largest cryptocurrency in the world and is well-known for creating the USDT stablecoin, which is a digital representation of the US dollar. In cryptocurrency marketplaces, this token is an essential asset that frequently replaces fiat money.
Is Tether in Trouble?
Concerns about Tether’s stability were reignited when the Wall Street Journal (WSJ) reported on a possible probe into the company, suggesting that U.S. authorities might consider sanctions.
Hilary Allen, a law professor at American University, highlighted the potential ripple effects, stating, “If Tether were to go to zero tomorrow, it would be disastrous for the crypto economy.” The report sent tremors through the market, yet USDT’s price only dipped slightly, holding steady at about 99.69 cents.
Amid these allegations, Tether CEO Paolo Ardoino denied any investigation, calling the report “old news” in a public post. However, this scrutiny adds to a history of concerns, including whether Tether possesses the reserves needed to back USDT’s $1 peg.
Federal investigations into Tether began in 2021, with prosecutors in Washington warning the company about potential charges for misleading banks. Although the investigation later moved to New York, no formal actions have followed.
Another layer to the issue is the Treasury Department’s examination of Tether’s role in international transactions involving entities under U.S. sanctions, such as Russian arms dealers and organizations like Hamas.
Sanctions by the Treasury’s Office of Foreign Assets Control could have a devastating effect on Tether’s operations. John Paul Koning, a financial analyst, explained, “If Cantor Fitzgerald had to block Tether’s billions in T-bills, it’s hard to imagine how the redemption mechanism would continue to function and the peg holds.”
The Assurance Around Tether So Far
The Wall Street firm Cantor Fitzgerald, a key partner to Tether, has managed nearly $100 billion in Treasury securities to support USDT’s dollar value. Cantor’s CEO, Howard Lutnick, has defended Tether’s financial backing, insisting it could meet redemption demands in a crisis. Still, questions remain as Tether branches out.
The firm recently ventured into commodities markets, proposing blockchain-based borate mineral tokens in Turkey and exploring lending for the energy sector.
Cryptocurrency experts contend that Tether’s problems are not brand-new. “Tether FUD has always been around in some form or another,” said Edward Chin, co-founder of the investing firm Parataxis.
Regulating issues like these, however, becomes more important as cryptocurrency becomes more like traditional finance, as demonstrated by the recent introduction of Bitcoin ETFs.
Maintaining Tether’s stability is crucial, and any interruption might affect the larger financial scene. The cryptocurrency community is currently keeping a close eye on Tether while juggling its resiliency with the increased regulatory challenges that are on the horizon.