As the US government ramps up its damning legal campaign against the cryptocurrency industry over the past two years, one company has escaped prosecution. Tether is the company that developed the stablecoin of the same name, pegged to $1, which has become the go-to currency for various blockchains. transaction.
But Tether may no longer be able to escape scrutiny. wall street journal Federal prosecutors in Manhattan are investigating whether Tether violated money laundering and sanctions laws through its use by global criminal networks for drug trafficking, terrorism and hacking, according to a report Friday. thing. The company categorically denies this allegation.
Tether said, “It is extremely irresponsible for the Journal to write an article with such credibly reckless claims when authorities have no records to confirm these rumors and the names of the sources have not been disclosed.'' ,” Tether said in a statement. luck. “The article also inadvertently glosses over Tether's well-documented and extensive dealings with law enforcement to crack down on bad actors who seek to exploit Tether and other cryptocurrencies. .”
With a market capitalization of $120 billion, Tether's dollar-pegged stablecoin plays an essential role as a settlement currency for cryptocurrency transactions and as a hedge against volatility in many countries where citizens do not have access to the dollar. However, murky regulatory relationships have led to ongoing questions about how exactly stablecoins are backed and the use of Tether for criminal activity.
Tether has faced previous investigations, including the New York Attorney General's Office, which fined Tether and its parent company Ifinex $18.5 million in 2021 for operating illegally in the state. This includes an investigation by the Commodity Futures Trading Commission. Tether has been ordered to pay a $41 million fine in 2021 for engaging in illegal transactions. The latest probe reportedly expands the Justice Department's investigation into whether Tether's backers committed bank fraud.
A spokesperson for the U.S. Attorney for the Southern District of New York did not respond to a request for comment.
Rise of tether
Tether was founded in 2014 by Bitcoin enthusiasts, including “The Mighty Ducks” actor Brock Pierce, and was one of the earliest versions of a stablecoin. Stablecoins are a type of cryptocurrency that is pegged to an underlying asset, such as a fiat currency or a commodity such as gold or oil. . The project was soon acquired by Bitfinex, one of the leading cryptocurrency exchanges.
Tether has maintained significant trading volumes, but its usage increased during the 2021 bull market. At this time, the explosion in trading increased the need for a crypto-native payment currency on exchanges with lower volatility than Bitcoin or Ethereum. Tether has faced competition from rivals such as USDC, a stablecoin project backed by Circle and Coinbase, but its offshore operations allow it to reach countries outside the reach of the United States, including economies without access to the dollar, such as Argentina. This has become an attractive option for many people. And Lebanon.
Despite Tether's astronomical growth, the company also faced ongoing questions about its operations, including whether the stablecoin was actually fully backed by dollars. A 2021 Bloomberg investigation revealed that a significant portion of Tether’s reserves were held in risky assets such as commercial paper from Chinese companies. The company says it will no longer engage in such practices. Still, Tether has yet to undergo a traditional audit due to the difficulty of convincing major accounting firms to accept Tether as a client.
Blockchain analytics companies are also linking Tether to global criminal networks, specifically using a version of the stablecoin issued on the Tron blockchain. A report released by TRM Labs earlier this year found that by 2023, Tron will host 45% of all illicit trading volume, and more than half of Tether's current market capitalization was hosted on Tron. . Tether has touted its efforts to combat criminal use and freeze addresses associated with illegal activity. In September, Tether and Tron announced a new partnership with TRM Labs called the T3 Financial Crimes Unit.
Ongoing scrutiny
The unresolved questions swirling around Tether will not hinder Tether's growth, especially after rival USDC temporarily lost its $1 peg in the secondary market during the March 2023 banking crisis. Ta. Tether continues to dominate even as companies like PayPal launch new stablecoins. Sector. The company is also backed by Howard Lutnick, CEO of financial services giant Cantor Fitzgerald, which manages some of Tether's underlying assets. Mr. Lutnick is a key economic adviser to former President Donald Trump.
However, the newly reported investigation into Tether's operations raises the risk of disruption to both Tether and the entire crypto sector, similar to what happened after the collapse of the fraudulent FTX exchange in November 2022. . Tether is arguably more integral to Tether's business. It has an advantage over FTX for the crypto industry as its stablecoin supports the global crypto economy.
The potential charges could mirror the Justice Department and Treasury Department's case against Binance, which focuses on money laundering due to terrorist and drug-trafficking network activities and sanctions violations by the exchange. Tether has ties to groups including Hamas, and has also been linked to Russian arms dealers.
“There is no indication that Tether is under investigation,” Tether CEO Paolo Ardoino posted on X after the news broke. “WSJ is regurgitating old noise. Full stop.”
