• Tether recently settled a $1 trillion lawsuit revolving around the unbacked issuance of the stablecoin.
  • Senator Cynthia Lummis has stated that any regulatory framework for stablecoins will require full cash-backing, similar to money market mutual funds. 
  • Tether loaned $1 billion to Celsius Network, a crypto lending firm that has come under the ire of financial regulators several times. 

Tether finds itself at the forefront of controversies when it comes to backing its stablecoin with USD reserves. Tether's reserves have remained a mystery for years, despite publishing transparency and audit reports. 

Tether's $69 billion reserves raise questions from regulators

Tether is no stranger to scrutiny from regulators. Tether Limited is the company behind the stablecoin USDT, and Bitfinex owns it. 

Tether was under investigation for issuing stablecoins backed without cash reserves. Tether's $69 billion worth of stablecoins (issued, authorized or both) are supposed to be backed by USD. However, no entity can validate the $69 billion reserve. 

Interestingly, 30% of the Tether under circulation was issued in 2021. Despite inadequate proof, the stablecoin is relevant in crypto circles and used extensively, so much so that it ranks fourth in terms of market capitalization. 

Crypto Twitter is abuzz with questions on Tether's reserves and where the company holds the USD that backs its stablecoins. An anonymous blog post titled "The Bit Short: Inside Crypto's Doomsday Machine" recently went viral. 

Jim Cramer, the host of "Mad Money" on CNBC, was quoted as saying, 

We need to accept the beatdown in speculative assets for the greater good of the entire stock market. This speculative meltdown can temporarily weigh on the entire market, sure, but once the speculators get shaken out, I'm betting it's a win for the Dow and definitely the S&P.

Cramer's argument leads proponents to the question: What happens when a cryptocurrency is too big to fail?

If the downfall of Tether triggered a collapse in the crypto economy, it would mean a meltdown of $2.3 trillion. Experts consider this a sizable threat to the global economy. 

Steven Mnuchin, former Treasury Secretary, says,

They shouldn't be like casino chips- if you are going to issue a stablecoin, the actual money should be held in a regulated bank, and people who hold stablecoins should be able to exchange those for real dollars at any time.

On its website, the stablecoin issuer reveals a $30 billion investment in commercial paper. However, there is no evidence to back this claim. Similarly, the company states that it registered with the British Virgin Islands Financial Regulator, but the agency denies the claim. 

A paper trail backs the investment of $15 billion in cash and extremely low-risk bonds. Jean Chalopin, Chairman of Deltec Bank & Trust, admitted that the Bahamas-based bank overlooks Tether's $15 billion. However, this accounts for 21% of the $69 billion reserves. 

Tether has offered billions of dollars in loans to companies like Celsius Network, a firm under scrutiny by Kentucky's securities regulator. Further, Tether recently settled a trillion-dollar lawsuit filed against it by five cryptocurrency traders who claimed to have suffered losses due to unbacked USDT issuance. 

Proponents in the cryptocurrency ecosystem are asking what's next once Tether comes under further scrutiny from regulators. Alex Krüger, a cryptocurrency analyst, tweeted:

The controversy looms as traders continue buying Tether to get started with cryptocurrency trading and exchange. In countries where Bitcoin and cryptocurrencies are unregulated or banned, there is a higher demand for Tether. 

Pseudonymous cryptocurrency analyst @CryptoWhale considers that Tether's downfall and lack of real utility are expected to impact Bitcoin negatively. 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Cryptos feed Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Why LUNA traders do not have to be in the market all the time

Why LUNA traders do not have to be in the market all the time

Terra (LUNA) price action has slipped below a critical level outlined a few days ago. As price action moves start to get smaller, a big move is set to happen, but it is very cloudy to see where that move will be going.

More Terra News

SEC vs. Ripple case, two key decisions awaited by XRP holders

SEC vs. Ripple case, two key decisions awaited by XRP holders

XRP holders are awaiting key decisions in the SEC vs. Ripple case. Experts believe judge Sarah Netburn could rule on the two key decisions in the lawsuit against payment giant Ripple. 

More Ripple News

MATIC price explodes as Polygon achieves Carbon neutrality

MATIC price explodes as Polygon achieves Carbon neutrality

MATIC’s purchase of carbon credits through KlimaDAO partnership represented 104,794 tonnes of greenhouse gasses, equivalent to the Ethereum scaling solution’s debt since 2019. Carbon neutrality has fueled a bullish sentiment among traders and 

More Polygon News

Things have suddenly changed for the Shiba Inu price, is the bottom in?

Things have suddenly changed for the Shiba Inu price, is the bottom in?

Shiba Inu price may have bottomed but this can only be confirmed if the current rally persists. Traders should be aware of several factors. Shiba Inu price has suddenly changed as the bulls have printed a significantly large bullish engulfing candle on the daily chart. 

More Shiba Inu news

Bitcoin: Everything you need to know about BTC 200-week MA

Bitcoin: Everything you need to know about BTC 200-week MA

Bitcoin price has gone through turbulent times over the last few months. From reaching a new all-time high to hitting yearly lows and revisiting levels since 2020, the crypto markets have been extremely volatile.

Read full analysis

BTC

ETH

XRP