A New York court questions the integrity of Tether USDT, the creator of the steblicoin. What’s going on?
A court in New York has ordered Tether Limited to provide financial statements on the USDT Stablecoin it is issuing. The issuer was ordered to publish “books, balance sheets, income statements, cash flow statements, profit and loss statements” in addition to information about the timing of transactions. The directive also requires Tether to provide details of the accounts it holds on the Bitfinex, Poloniex and Bittrex crypto exchanges. We tell you what’s going on.
As a reminder, a class action lawsuit was filed against Tether in December 2021, accusing the company of manipulating the crypto market by issuing USDT tokens allegedly unsecured by real funds. The aforementioned claim by Judge Catherine Polk Failla against the stabelcoin issuer is part of this very lawsuit.
In general, Tether finds itself the target of criticism in almost every bear market. Despite this, the day before the USDT coin gained new fans amongst stabelcoin users. The reason for the situation is the sanctions against the popular cryptocurrency mixer Tornado Cash, which the US government issued in the summer.
Protest in Amsterdam against the arrest of Tornado Cash developer Alex Pertsev
Shortly after the event, the issuer of another popular stack called USDC blocked addresses associated with the platform. Circle itself is based in the US, but the government has not obliged it to do anything of the sort. Accordingly, the management of the giant made this decision on its own, while Tether did not resort to blocking.
And while Tether is also a centralized company that will necessarily obey the authorities' directive, in the short term USDT has gained major new users. However, the company could now be in definite trouble.
What’s going on with Tether
Tether is owned by its parent company iFinex Inc, which also owns the Bitfinex crypto exchange. Both of these names have been in the news for scandals and proceedings within the crypto-sphere for years. For example, in June 2018, researchers from the University of Texas at Austin published a report on Bitcoin price manipulation on Bitfinex using an abnormally high volume of USDT.
According to Decrypt’s sources, the financial strength of Tether has also been questioned in the past. In February 2021, New York Attorney General Letitia James ordered the suspension of Bitfinex in New York and ordered the exchange to pay $18.5 million in fines following a state investigation. During it, it emerged that Tether did not have enough USDT to back up all USDT in circulation.
USDT capitalisation over the past year in billions of dollars
On the same occasion, lawyers representing Tether tried to block Judge Failla’s ruling, calling it “unduly burdensome”. However, the court insisted: “the documents the plaintiffs are requesting are undoubtedly important” to assess USDT’s collateralization with U.S. dollars.
Incidentally, last month Tether said it was “reshuffling” its reserves – with management seeking to reduce the proportion of commercial paper backing USDT as much as possible so as not to be dependent on market fluctuations.
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While Tether is arguing its case in the courts, the International Monetary Fund is calling for a coordinated approach by global agencies in regulating the crypto market. According to the organization in its latest September newsletter, the crypto market has already integrated into the traditional financial system, CryptoSlate reports. As a result, there has been an urgent need to regulate it in order to prevent potential detrimental impact from the sphere without proper controls.
"Deleterious influence" could indeed manifest itself: the crypto market is still a sphere in which the volume of fraudulent schemes is equivalent to billions of dollars each year. This problem could well be solved by internationally coordinated regulation.
IMF
The problem, however, is a coordinated effort to regulate cryptocurrencies. Due to the rapid development of the market, it is difficult for regulators to keep track of market trends. Applying the existing regulatory framework may also be insufficient, as different uses of crypto-assets attract the attention of different regulators. Here is a quote from IMF experts on the subject.
On the one hand, authorities have banned the issuance or ownership of crypto-assets by residents, the ability to transact with them or use them for certain purposes, such as payments. On the other hand, some countries have been much more welcoming and have even sought to attract companies to develop a market for these assets.
Cryptocurrency investors in a bear market
In other words, the global public has yet to come to a common understanding of how to treat crypto. Even developed countries are still at a crossroads – in the US and Europe, for example, digital assets are regulated under sometimes conflicting laws. A general consensus on this could really accelerate the development of the crypto market significantly.
We think it is unlikely to create problems for Tether in this way. After all, the market capitalization of the company's product is equivalent to billions of dollars, and the USDT stabelcoin itself performed well during an active bear market offensive in May 2022, when the market collapsed due to the Terra ecosystem collapse. So the giant's representatives will probably be able to protect themselves this time as well.
What do you think about it? Share your opinion in our Millionaire Crypto Chat. Talk about any other topics there as well.
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