U.S Regulators Influence Stablecoin Tether, Diminished Appeal Amidst Growing Regulatory Scrutiny

2024-03-06, 03:12

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## [TL; DR]
The United States has the capacity to monitor and control <a href="/th/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a>’s offshore usage.

Tether should comply with The Clarity for Payment Stablecoins Act in the United States and MiCA in the European Union once they are operational.

If Tether improves its legal compliance it will be able to maintain its dominance in the Stablecoin market.

## Introduction
The crypto sector is facing various regulations in several countries which creates uncertainty on the issuers and users. Stablecoins are under regulatory purview due to their high adoption and demand. Although many people around the globe have access to different cryptocurrencies, those who aim to maintain the values of their investments prefer Stablecoins to other crypto assets.

Nonetheless, the [collapse of some stablecoins like TerraUSD](https://www.gate.io/blog_detail/2026/brace-for-impact-a-guide-to-navigating-a-cryptocurrency-crash-in-2023 "collapse of some stablecoins like TerraUSD") has forced several governments to adopt stricter regulations. Also, there are other regions around the world like the European Union where countries are coordinating their efforts to implement and enforce crypto legislation.

Today, we look at how the European Union and the United States are working towards introducing stricter regulatory measures than before. In particular we shall assess the regulatory challenges the Stablecoin Tether is facing.

## US Regulatory Control over Stablecoin Tether’s Offshore Usage
The United States can control and monitor [stablecoin Tether](https://www.gate.io/learn/articles/what-is-tether-usdt/205 "stablecoin Tether") in its offshore usage through the Office of Foreign Assets Control (OFAC), its agency responsible for implementing financial sanctions.

Dlnews, through its online publication, [quotes a team of JPMorgan analysts](https://www.gate.io/learn/articles/what-is-tether-usdt/205 "quotes a team of JPMorgan analysts"), led by Nikolaos Panigirtzoglou as saying, "U.S. regulators can exert some control on Tether's offshore usage via OFAC."

Recently, JPMorgan raised alarm pertaining to Tether Stablecoin regulatory compliance, especially when compared to its rivals like USDC. Over the years, crypto analysts and other key stakeholders exerted pressure on Tether to enhance its transparency on its reserves.

However, even after Tether made its financial attestations, JPMorgan maintains that the Stablecoin issuer still lacks full transparency. Already, in 2021 the U.S. Commodity Futures Trading Commission (CFTC) imposed a $41 million fine on Tether for incorrectly representing its reserves as well as making a false claim that its Stablecoin was fully backed by the United States dollar.

What makes Tether coin more vulnerable than other Stablecoins is its overdependence on the United States crypto market. This is because the evolving regulatory landscape in the country threatens Stablecoins and other crypto assets. Notably, the U.S. Treasury’s Office of Foreign Assets Control  can track the performances of crypto projects around the globe as long as they allow its citizens to invest with them.

JPMorgan explains how OFAC can affect Tether’s performance. It said, “While direct legal actions against offshore entities and decentralised firms are complex, indirect measures and international cooperation could potentially hinder the usage of Tether.” It is important to realize that regulatory challenges can affect the crypto price of a digital asset.

## Tether’s Relationship with Tornado Cash
What has enabled the United States to put Tether on its radar is its relationship with Tornado Cash, the crypto-mixer, which OFAC blacklisted and sanctioned. The United States accuses Tornado cash of facilitating money laundering activities.

In the past, Tornado Cash facilitated the movements of crypto assets in a way that was difficult to track. For example, Lazarus Group, a Democratic People’s Republic of Korea (DPRK) affiliated hacking group used Tornado Cash to access some crypto assets it acquired through illicit means such as hacking.

In most cases, Lazarus Group used to convert the crypto assets it looted to Tether Stablecoin, a reason why the United States is monitoring USDT.

It is essential to note that when the United States sanctioned Tornado Cash Tether refused to bar the sanctioned wallet addresses despite receiving a request from US authorities to do so. Nonetheless, in December 2023 Tether froze all the wallets which the United States sanctioned, describing its action as a proactive security measure.

## Tether Dominance Increases
Over the past years <a href="/th/price/tether-usdt" target="_blank" class="blog_inner_link">Tether crypto</a> Stablecoin recorded growth as both its market capitalization and market share increased as many centralized and decentralized exchanges as well as other DeFi platforms adopted it over the years.

As a result of its growth and impressive performance Tether made a profit of $2.85 billion during the fourth quarter of 2023. More interestingly, Tether generated a profit of $6.2 billion in 2023.

In its year end attestation Tether said that it is committed to upholding financial transparency. Regarding this, [Paolo Ardoino, Tether CEO, said](https://tether.to/en/tethers-2023-q4-attestation/ "Paolo Ardoino, Tether CEO, said"), "Tether’s Q4 attestation underscores our commitment to transparency, stability, and responsible financial management.”

Another factor that contributed to [Tether coin’s rising dominance](https://www.gate.io/how-to-buy/tether-usdt "Tether coin’s rising dominance") were the regulatory challenges and the 2023 banking financial crisis that affected its rivals, especially USDC. For instance, the collapse of Silicon Valley Bank (SVB) in the first quarter of 2023 [led to the depegging of USDC](https://www.gate.io/blog_detail/2303/svb-crash-caused-the-butterfly-effect-in-the-crypto-market-what-should-investors-do "led to the depegging of USDC") resulting in a decrease of its Stablecoin market share. Therefore, many crypto users who lost confidence in USDC, with a reserve of  $3 billion in SVB by that time, opted to use Tether USDT.

Read also: [USDC Stablecoin Issuer Befriends Cross River Bank](https://www.gate.io/blog_detail/2399/usdc-stablecoin-issuer-befriends-cross-river-bank "USDC Stablecoin Issuer Befriends Cross River Bank")

## Regulation of Stablecoins in Europe and United States
The Stablecoin regulations which different countries enact affect the performances of cryptocurrencies like Tether USDT. As a result, Stablecoins that rank lowly on compliance with crypto laws lose their attractiveness in the market.

Unless Tether increases its financial transparency and compliance with KYC/AML standards and other crypto rules its market dominance will likely diminish in the future.

Read also: [The average transfer amount is US$7,000, becoming the first choice for daily payments and remittances](https://www.gate.io/learn/articles/behind-the-new-high-of-usdt-supply-the-average-transfer-amount-is-us7000-becoming-the-first-choice-for-daily-payments-and-remittances/1687 "The average transfer amount is US$7,000, becoming the first choice for daily payments and remittances")

Currently, the crypto world is waiting for the introduction of new crypto regulation such as Markets in Crypto-Assets Act (MiCA) in Europe and the Clarity for Payment Stablecoins Act in the United States. Both pieces of regulations stipulate various standards Stablecoin issuers should follow.

Regarding the Clarity for Payment Stablecoins Act, the CRS report states that all Stablecoin issuers will be required to “hold one dollar of permitted reserves per dollars’ worth of Stablecoin,” and “prohibited from using reserves except for the purpose of creating liquidity for redemptions.”

In a similar manner, MiCA will require Stablecoin issuers to keep adequate reserves. As a result, the Stablecoin issuers should publicize their reserves to their customers. Such a piece of Stablecoin regulation requires the issuers to be transparent and comply with it.

## Conclusion
Due to the evolving regulatory environment, Tether should comply with existing regulations to maintain its dominance on the Stablecoin market. Already, the Office of Foreign Assets Control can monitor Tether in its offshore usage and take appropriate action such as filing appropriate lawsuits. In the future Tether needs to comply with The Clarity for Payment Stablecoins Act in the United States and MiCA in the European Union.

## FAQs about Tether Stablecoin
### What company owns Tether?
Tether Limited, founded by iFinex Inc. – a Hong Kong-based company- owns Tether Stablecoin. This Stablecoin is pegged to the United States dollar.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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