Bloomberg has continued its campaign to discredit Tether with another article questioning the backing and reserves of the world’s most popular stablecoin.
Bloomberg launched a scathing attack on the stablecoin issuer in a BusinessWeek article on Oct. 7 titled “Anyone Seen Tether’s Billions?”
In it, the financial news giant stated that the stablecoin is essentially a fraud because it does not have the assets to back it. At the time of writing, there were 69 billion USDT tokens in circulation, according to Tether’s own transparency report.
“Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud.”
As if to run salt in the wounds, Bloomberg followed up with another article on Oct. 8 highlighting the key points from the previous one.
It claims that part of Tether’s reserves includes “billions of dollars of short-term loans to large Chinese companies.” It added that some loans are crypto-backed, but Tether has already confirmed this.
Bloomberg pointed at Tether Chief Financial Officer Giancarlo Devasini, citing former chief executive officer of Noble Bank, John Betts. He alleges Devasini invested some of the reserves “to earn potentially hundreds of millions of dollars of profit for himself.”
It also reiterated older reports that Tether executives were targets of a criminal bank fraud investigation by the U.S. Department of Justice.
Tether Bites Back
Tether posted a response to the scathing reports on Oct. 7, stating it was:
“A one-act play the industry has seen many times before, taking snippets of old news from various places and dubious sources, and making it fit a pre-packaged and pre-determined narrative.”
The company added that Bloomberg “refuses to let the facts get in the way of the story” and relied on John Betts, whom Tether fired as its banker. Tether fingered Betts in return, adding that:
“Betts has also been accused of engaging in egregious and wasteful self-dealing and seeking to enrich himself at Noble’s expense.”
Tether maintains that all of its tokens are “fully backed” but has yet to submit a complete and full audit of its reserves. According to a court filing in May, USDT reserves are heavily dollar-weighted but also include cash equivalents, bonds, secured loans, crypto assets, and other investments.
In late July, Tether general counsel Stuart Hoegner stated that the firm hopes to be the first to conduct a full audit which will be coming in months, not years.
U.S. regulators meanwhile continue to put the squeeze on stablecoins with the same tired claims that they threaten the traditional financial system. In essence, this was their purpose, as Tether attests in its rebuttal.
“While this may threaten the establishment of traditional financial systems, we will continue to work for the underrepresented.”
Tether to work with regulators to address stablecoin concerns
- Sen. Sherrod Brown has sent letters to stablecoin issuers and crypto exchanges requesting information on how they are protecting consumers and investors.
- Tether in response to the press release issued by Sen. Brown Tether has assured that they would be working with lawmakers to improve the industry.
The recent surge of the crypto market value has called for the need to protect investors through designed regulations. With the majority of the concerns focussing on the highly volatile assets, stablecoins like Tether (USDT) that hold the value and stability of another financial asset have not been spared. In a recent report by the President’s Working Group on Financial Markets, stablecoin was said to pose a huge risk to investors as the unregulated assets are a threat to market integrity and investors’ protection.
The report highlights that stablecoins may lead to “possible fraud and misconduct in digital asset trading, including market manipulation, insider trading, and front running, as well as a lack of trading or price transparency.”
In response to the concerns highlighted in the report, Sen. Sherrod Brown, Chair of the U.S. Senate Committee on Banking, Housing, and Urban has sent letters to stablecoin issuers and crypto exchanges requesting information on how they are protecting consumers and investors.
A copy of the letter was sent to Gemini, Paxos, Coinbase, Tetter, Circle, Binance.US, and TrustToken.
Sen. Brown wrote in the letter to Circle:
I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms.
Tether ready to collaborate to meet investors protection standard
Tether in response to the press release issued by Sen. Brown has assured that they would be working with lawmakers to improve the industry.
We appreciate the interest from lawmakers in the function, purpose, and security of all stablecoins across the cryptocurrency ecosystem. We have been and are pleased to work with policymakers around the world on these important issues.
It is critical that we work collaboratively to build this industry. As pioneers of blockchain technology and leaders in transparency and innovation, Tether is dedicated making sure our customers are properly protected and have the tools they need to succeed. 2/3— Tether (@Tether_to) November 25, 2021
In early October, the Securities and Exchange Commission (SEC) issued a subpoena of which Circle, the issuer of USD Coin (USDC) pledged to fully cooperate with the regulators. Circle has also hinted that to meet the required accountability standard, it will be working to become more transparent.
Authorities at G20 have also called for the regulation of stablecoins before they are approved for use. Not just that, it was also said the Central Bank Digital Currencies (CBDCs) must be implemented before global stablecoin use.
Recently, the tech probe launched by the Consumer Financial Protection Bureau (CFPB) included stablecoins. According to Rohit Chopra, the director, stablecoins issued by a big tech firm could see a fast and widespread adoption when it leverages its large user base. SEC Chair Gary Gensler also referred to stablecoins as “Poker Chips” after it was reported that SEC has decided to crack down on the market.
Regulators are primarily concerned about the asset backing of stablecoins though it is said to be pegged in the value to the US Dollar. However, the popular stablecoins are actually backed by commercial paper like Tether and US Treasury debt like USD Coin.
Tether responds that he will collaborate with the US Senate
Yesterday we published the news: “US Senate urgently requires data from Tether and other stablecoins”, with the letter sent by the Committee on Banking, Housing and Urban Affairs, translated in full.
Today, Tether’s official profile posted on twitter that:
“We appreciate the interest of policymakers in the function, purpose and security of all stablecoins in the entire cryptocurrency ecosystem. We have worked and are pleased to work with policy makers around the world on these important issues.”
We appreciate the interest from lawmakers on the function, purpose, and security of all stablecoins across the cryptocurrency ecosystem. We have been and are pleased to work with policy makers around the world on these important issues. 1/3— Tether (@Tether_to) November 25, 2021
And they continued:
“It’s critical that we work collaboratively to build this industry. As blockchain technology pioneers and leaders in transparency and innovation, Tether is dedicated to ensuring our customers are properly protected and have the tools they need to succeed.”
“We look forward to working with stakeholders to develop these structures.” – concluded.
It’s not the first time the US government has made a regulatory move against Tether, and it’s not the first time the company has responded that it intends to collaborate with the authorities.
Both Tether and other stablecoin broadcasters have until December 3rd to officially answer all questions in the November 23rd letter.
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Senate Banking Committee Wants Clarity on Stablecoins: Sends Letters to Tether, Coinbase, Circle
US authorities continue to push for stablecoin clarity by sending letters to several such issuers, including Circle, Coinbaes, and Tether.
Senator Sherrod Brown appears to be keen on understanding how the process of stablecoin minting and redemption actually work. A comprehensive regulatory regime for stablecoin is the need of the hour, a failure to roll out one will prompt the watchdogs to step in.
The head of the US Senate Banking Committee has called upon stablecoin issuers and platforms to disclose their process. Sen. Sherrod Brown (D-OH), Chair of the Senate Banking, Housing, and Urban Affairs Committee, has sent letters to Coinbase, Gemini, Paxos, TrustToken, Binance.US, and Centre, seeking information on what steps these companies are taking towards consumer and investor protection.
Stablecoin Risks Concerns
For the most part, the United States has been a trendsetter when it comes to embracing new technological advancement and innovation. However, the regulators are yet to apply a similar approach towards cryptocurrencies and specifically stablecoins.
Several high-profile authority figures have highlighted stablecoins as a substantial threat to the global financial system, time and again. But this time, Senator Sherrod Brown is keen on understanding the workings behind stablecoins and the risks they pose.
In his letter to the payment technology company, Circle, the Senator stated,
“I have significant concerns with the non-standardized terms applicable to the redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms.”
Policymakers’ Escalating Effort on Understanding Stablecoin
He also asked CEO Jeremy Allaire to clarify the essential operational features of the USDC stablecoin. These include the basic purchase, exchange, or minting process, redeeming of USDC, and receiving USD, requirements, or limits (if any), including any minimum redemption size, waiting period, or qualifications.
Questions about USDC issuance and circulation were also mentioned, among others. Brown set December 3 as the last date for the digital asset company to respond.
While emphasizing the rapidly ballooning size of the stablecoin sector, Brown acknowledged the need for better understanding and clarity on how these assets function and their potential risks. The Senator referenced the stablecoin report compiled by the President’s Working Group (PWG), published earlier this month.
The highly anticipated report in question was released by a group of regulators in the US that urged the lawmakers to take subject stablecoin-based companies to similar stringent federal oversight as traditional financial institutions such as banks.