What happened?
The Wall Street Journal reported that the stablecoin issuer Tether is currently under investigation by the US Department of Justice and the Treasury Department, suspecting that its stablecoin USDT may be used to fund illegal activities.
Tether denies the allegations and states that the company has actively cooperated with global law enforcement agencies to combat illegal activities.
Experts point out that if the government imposes sanctions, it could lead to the freezing of Tether’s assets, directly impacting the stability of USDT’s peg to the US dollar.
According to a report published by the Wall Street Journal on October 25th, stablecoin issuer Tether is currently under investigation by the US Department of Justice and the Treasury Department. It is suspected that its stablecoin USDT may be used to fund illegal activities such as drug trafficking, terrorism, cyber attacks, and money laundering by criminals.
The investigation, led by the Manhattan US Attorney’s Office, primarily focuses on whether Tether has violated sanctions and anti-money laundering laws. As the investigation deepens, the US Treasury Department is also considering imposing sanctions on Tether, as its stablecoin is widely adopted by organizations and individuals subject to US sanctions, such as the terrorist organization Hamas and Russian arms dealers.
In response to these allegations, Tether denies the claims and calls the reports unsubstantiated and “old news.” Tether’s CEO, Paolo Ardoino, states that the company has been actively cooperating with global law enforcement agencies to combat illegal activities and has assisted in the recovery of approximately $109 million in illegal funds since 2014. The company has also strengthened its monitoring of stablecoin transactions.
“If Tether were under investigation, the company would know about it. Therefore, based on this fact, it can be confirmed that the accusations in the article are completely false,” said Ardoino.
Over the years, Tether has been associated with numerous controversies. In addition to the aforementioned illegal activities, the reserve and transparency of Tether’s assets have also been points of controversy.
However, according to the details of Tether’s disclosed asset reserves, the company holds approximately $100 billion in US Treasury bonds, over 82,000 bitcoins (around $550 million), and 48 tons of gold. Ardoino emphasizes that these assets are sufficient to support the stability of USDT.
Government sanctions may affect the stability of USDT’s peg
As the world’s largest USD stablecoin with a daily trading volume of up to $190 billion and a market capitalization exceeding $120 billion, Tether’s stable value pegged to the US dollar is considered an ideal and convenient trading tool in many regions where the use of the US dollar is prohibited. Of course, it is not without the abuse by criminals, which leads to Tether being involved in new events from time to time.
According to Bloomberg, Hilary Allen, a law professor at a US university, warns that if USDT collapses, it will have a devastating impact on the entire cryptocurrency economy and may even affect traditional financial markets.
If the government imposes sanctions, it could lead to the freezing of Tether’s assets, directly impacting the stability of USDT’s peg to the US dollar. Cantor Fitzgerald, a US financial services company, is Tether’s main asset management partner responsible for managing its nearly $100 billion in US Treasury bonds.
Once the sanctions take effect, Cantor Fitzgerald may have to freeze these assets, and market experts believe that this will trigger a massive conversion of USDT into US dollars or other fiat currencies by users, causing further pressure on the market.
Sources:
WSJ, Cointelegraph, Bloomberg
