In the past two days, Paulo Ardoino, CEO of Tether, and Brad Garlinghouse, CEO of Ripple, have been involved in a "war of words" for several days. Garlinghouse pointed out that the next regulatory hammer of the US SEC will fall on Tether, which was immediately denied by Ardoino.

In fact, the current regulatory environment in the United States is imposing more compliance requirements on stablecoin issuers. On April 17 this year, two U.S. congressmen proposed the Lummis-Gillibrand Payment Stablecoin Act, marking the latest stablecoin legislation and regulatory trends. In this regard, international credit rating agency S&P Global Ratings pointed out at the end of last month that if the latest stablecoin bill proposed by the U.S. Senate is passed, it may drive banks to get involved in the stablecoin market and weaken Tether's dominance.

As a stablecoin with a super high market share, will Tether, the issuer of USDT, face a black swan event caused by regulation? Judging from a series of new actions recently announced by Tether, Tether has a response plan. In addition to expanding its business territory in an attempt to diversify its income, it is stepping up its lobbying efforts.

Due to the different opinions on regulatory issues, Ripple said it was based on analysis of US regulatory trends

On May 10, Ripple CEO Garlinghouse said in the "World Class" podcast that Tether is the next major crypto company targeted by the U.S. SEC since the collapse of FTX and the imprisonment of former CEO SBF, and the recent conviction and sentencing of former Binance CEO Changpeng Zhao (CZ).

“Do I think there’s going to be another black swan event? Absolutely, 100 percent,” Garlinghouse said. “I just don’t know exactly what it is ... The U.S. government is going after Tether,” he said. “That’s obvious to me.”

Garlinghouse said Tether is “a very important part of the ecosystem,” adding, “I don’t know how to predict what the impact will be on the ecosystem as a whole.”

Such direct predictions angered Tether CEO Paul Ardoino, who lashed out on May 13. "An uninformed CEO, leading a company under investigation by the SEC, launching a competing stablecoin, is reportedly spreading fear about USDT," the Tether CEO wrote in the X post. "The real facts show that Tethert is able to comply by leveraging the transparency of blockchain technology and cooperating with global law enforcement."

Ardoino shared examples of Tether’s policies, actions, and cooperation with law enforcement agencies in the U.S. and around the world. “Since its inception, Tether has worked with 124 law enforcement agencies in more than 40 different countries to freeze more than $1.3 billion, most of which was related to fraud, hacking, and money laundering, and approximately $1.6 million was related to terrorist financing. In the past 12 months alone, Tether voluntarily assisted law enforcement agencies in blocking 198 wallet requests (90 of which were in cooperation with U.S. law enforcement) and blocked 339 requests in the past 3 years (158 of which were in cooperation with U.S. law enforcement).”

In response to Tether, Ripple CEO Garlinghouse responded on the X platform later on May 13, saying that "(previous remarks) are not an attack on Tether... My point is that the US government has made it clear that they want to strengthen control over issuers of stablecoins backed by the US dollar, so as the largest player, Tether is on their radar."

US Senators propose new stablecoin bill, will Tether face the risk of being "out"?

The reason behind this war of words mainly comes from the latest stablecoin regulation bill proposed by US lawmakers in April this year. At present, the market value of stablecoins is about 150 billion US dollars, of which the market value of Tether (USDT) is about 106 billion US dollars. It is expected that the stablecoin market will exceed 2.8 trillion US dollars by 2028, so any regulatory trend on stablecoins has attracted much attention from the market.

The stablecoin bill is actually an old topic. As early as the first half of 2023, a related draft was passed, but it was not substantially approved for implementation. But on April 17 this year, U.S. Senators Cynthia Lummis (Republican, Wyoming) and Kirsten Gillibrand (Democratic, New York) proposed the Payment Stablecoin Act of 2024. Gillibrand called it "a landmark bipartisan legislation that creates a clear regulatory framework for payment stablecoins, which will protect consumers, promote innovation, and promote the dominance of the U.S. dollar while maintaining a dual banking system."

Senator Cynthia Lummis, who proposed the Stablecoin for Payments Act of 2024, and Senator Kirsten Gillibrand at the 2022 DC Blockchain Summit.

The proposal would bring oversight and transparency to the $150 billion stablecoin industry and could be the first major U.S. cryptocurrency legislation. It would also make it easier for state and federally regulated banks to custody digital assets on behalf of clients.

The bill would allow non-depository trust companies (non-banks) to issue stablecoins if the notional value of all their tokens is less than $10 billion. According to the bill text, larger stablecoin issuers must be "depository institutions authorized as issuers of national payment stablecoins." If the bill becomes law, companies like Circle (issued $33 billion in USDC) or Paxos ($135 million in PAXD) will have two options: either go through a non-bank at the state level, or as a depository institution that becomes a national payment stablecoin provider at the federal or state level. Any other form of stablecoin issuance is prohibited, including algorithmic payment stablecoins.

Not only that, the bill also contains an "extraterritorial clause," meaning these laws apply to companies outside the United States, such as Tether. Tether is headquartered in the British Virgin Islands, which will present a very delicate situation in terms of registration, because USDT is widely circulated among American investors and exchanges, but Tether says it does not serve American customers because it does not issue tokens directly to these companies. The U.S. Treasury Department hopes to obtain power from Congress to track down stablecoin issuers such as Tether. They are worried that criminals use dollar-backed tokens to conceal transactions.

In recent years, U.S. regulators have made various attempts at cryptocurrency bills, some focusing on setting rules for stablecoins, and others trying to define when digital assets are securities and when they are commodities to determine which U.S. regulator, such as the SEC and the U.S. Commodity Futures Trading Commission (CFTC), has the lead. Last year, two such bills passed the House Financial Services Committee, but the Senate did not adopt any bills due to a lack of enthusiasm from Senate Banking Committee Chairman Sherrod Brown (D-Ohio). However, in a recent Bloomberg interview, Brown said for the first time that he might be open to stablecoin legislation.

Tether has significantly increased its lobbying spending to adjust its multi-line business

At the same time, Tether's financial performance in Q1 this year was very impressive. In the first quarter of 2024 alone, Tether reported unaudited company "financial results" of $4.5 billion and net assets of $11.4 billion. In 2023, the company reported a net profit of $6.2 billion, which is likely to become the most profitable company in the cryptocurrency field today.

In comparison, Coinbase, the largest cryptocurrency exchange in the United States, is much inferior. Its full-year revenue in 2023 was US$3.1 billion, its profit reached US$95 million, and its net income in the first quarter of 2024 was US$1.2 billion.

With ample capital, Tether is also beginning to seek business growth beyond stablecoins. Last month, Tether announced a strategic reorganization that will expand into three new areas: Bitcoin mining, artificial intelligence (AI), and education. At the same time, the company also announced in the same month that it would reorganize its business into four independent departments to reflect its increasingly broad focus: (1) Finance, responsible for managing USDT and overseeing the upcoming digital asset tokenization platform; (2) Data, responsible for strategic investments in emerging technologies, including artificial intelligence and P2P platforms; (3) Energy, focusing on Bitcoin mining and energy-related projects; (4) Education, supporting education and leadership programs.

According to Tether CEO Aldo Ino, the company has doubled its headcount to about 100 employees over the past year. According to DefiLlama data, as of May 14, USDT still holds a 69% share of the stablecoin market, but its dominance is not unchallenged. For example, according to analysis by payment giant Visa and enterprise blockchain data platform Allium Labs, Circle's USDC reached 178.6 million transactions in April 2024, surpassing USDT's 173.9 million monthly transactions.

The aforementioned bill also provides a huge opportunity for non-bank institutions such as Coinbase and Ripple, making them the biggest winners. Coinbase went public in April 2021 and its stock has risen 274% in the past 12 months, mainly due to the recovery of the cryptocurrency market. Circle has also submitted a confidential S-1 document to the SEC and plans to go public in the future. The two companies are co-issuers of USDC and share investment income from their $33 billion worth of collateral in a 50/50 ratio. If Tether loses market share due to the bill, these companies will benefit first.

In order to cope with the increasingly stressful regulatory environment, Tether has also made continuous efforts. In addition to adjustments in its business, it has also devoted a lot of financial resources to gain greater recognition and understanding of cryptocurrencies and the industry from regulators. According to data from OpenSecrets, a nonprofit organization that tracks political spending, Tether's parent company iFinex increased its lobbying spending by more than 150% in 2023 to $1.2 million. The substantial growth has made iFinex the third largest spender on cryptocurrencies, second only to Coinbase and the industry organization Blockchain Association.