Original｜Odaily Planet Daily
Author: jk
Recently, the remarks of Ripple's senior management have once again put USDT on the cusp of the storm. Ripple CEO Brad Garlinghouse pointed out that the US government may take Tether as the next regulatory target, which has aroused widespread attention and discussion in the market. Although Tether insists on the transparency and compliance of its USDT, doubts about its potential risks continue.
USDT and Ripple’s war of words
According to the timeline, the recent war of words between Ripple and USDT can be divided into the following events:
On May 6, Ripple CTO David Schwartz revealed the company's upcoming integration plans at the XRP Las Vegas Conference. He introduced relevant information about the XRP Ledger, including automated market makers (AMMs), lending protocols, Ripple stablecoins, and artificial intelligence. Schwartz pointed out that the details of Ripple's stablecoin will be announced at the XRPL Apex event in Amsterdam in June.
Earlier, it was reported that Ripple plans to issue a stablecoin backed by the US dollar. The company said that this stablecoin is expected to be issued later this year and will be 100% backed by US dollar deposits, short-term US government treasuries and other cash equivalents. The stablecoin will first be deployed on Ripple's institution-centric XRP Ledger and Ethereum blockchains and will be based on Ethereum's ERC-20 token standard.
May 13 Ripple CEO Brad Garlinghouse said in a recent interview that the next target of the US government is Tether, the stablecoin company responsible for the circulation of USDT stablecoins. He believes that Tether is an important part of the cryptocurrency market system and he is not sure how this will affect other areas of the market. Some experts believe that the statement of the Ripple CEO is a very big insider information. If it really happens, there will be a very large selling pressure in the USDT stablecoin market, and the USDT price may fall sharply at that time.
On the same day, USDT CEO Paolo Ardoino publicly hit back at Ripple on Twitter: "A CEO, leading a company that is under investigation by the U.S. Securities and Exchange Commission (SEC), launched a competing stablecoin, and he is spreading fear about USDT."
Ripple CEO Brad Garlinghouse then responded: “I’m not attacking Tether… The next thing I said in the podcast was that I think Tether is a very important part of the ecosystem, and my view is that the U.S. government has made it clear that they want more control over the issuers of dollar-backed stablecoins, so Tether, as the largest player, is in their sights.”
Meanwhile, one piece of news worth noting is that on April 25, Maxine Waters, the Democratic leader of the U.S. House Financial Services Committee, predicted on Wednesday that she and Chairman Patrick McHenry would soon reach an agreement on stablecoin regulatory legislation. Waters said in an interview: "We are working to reach a stablecoin bill in the short term." She added that she had discussed stablecoins with Senate Majority Leader Chuck Schumer and Senate Banking Chairman Sherrod Brown, and said that the Federal Reserve, the Treasury Department and the White House were all involved in drafting the bill. The impact of this bill on current stablecoin issuers is unclear.
Will this be a thunder point: Why does USDT use Bitcoin as a reserve asset?
According to the transparency report on the USDT official website, all reserve assets are listed: cash and cash equivalents and other short-term deposits account for 84.05% of the total reserves, which are broken down into: US Treasury bonds account for 79.88%, overnight reverse repurchase agreements account for 12.2%, regular reverse repurchase agreements account for 0.9%, money market funds account for 6.77%, cash and bank deposits account for 0.11%, and non-US Treasury bonds account for 0.13%. This part of the assets is highly liquid and secure, and is the core of Tether's reserves, and is generally the core of major stablecoin protocols. However, Bitcoin accounts for 4.87% of it, which is also the core point of controversy.
The core point of stablecoins should be to keep the token pegged to the US dollar. At this point, in order to maintain the stability of USDT, it seems that there should be no assets related to cryptocurrencies in the reserve assets to isolate the relevance of USDT. If there is an event similar to the FTX-related event, theoretically there will be a large number of USDT redemption requests and Bitcoin sales demand in the market. If there is a connection between the two, it is possible to form a death spiral: market problems - Bitcoin is sold - USDT's reserve asset value decreases - USDT decouples - market panic increases, USDT runs, and more Bitcoin is sold. From this perspective, USDT really should not include Bitcoin in its reserve assets. In comparison, USDC's reserve assets only have real-world assets.
The benefit is that Bitcoin can diversify reserve assets and help reduce the risk of fluctuations in a single asset. The most important function is that Bitcoin can hedge against fiat currency risks and reduce the degree of binding to the US dollar and US bonds in reserve assets. Holding Bitcoin can protect Tether from the depreciation of fiat currencies (such as the US dollar). Bitcoin may provide a better long-term value storage in some cases, which adds a layer of protection to Tether's overall reserves. In addition, conformity with the cryptocurrency ecosystem is also one of the reasons why Tether chose Bitcoin. As a cryptocurrency, Bitcoin as a reserve asset is more in line with Tether's positioning in the cryptocurrency ecosystem.
However, Tether’s current excess reserves are $6,261,866,717, which is 6.02% of its total liabilities. In other words, even if all the Bitcoin in Tether’s vault disappeared overnight, in theory, Tether should not be decoupled.
Pros and cons
According to reports, Tether's net profit in the first quarter of 2024 exceeded $4.52 billion, a record high. Based on this data, analysts said that USDT is actually the most successful project in the RWA sector in the cryptocurrency field, and it is also a symbol of the dollar's important influence in the cryptocurrency field. Therefore, the US government has no reason to trouble Tether. At the same time, this profit margin also greatly reduces the view of some people that Tether will rug: maintaining the current profit margin to operate, the profit margin obtained will be much higher than the income brought by a one-time rug.
However, many KOLs believe that since most stablecoins are currently denominated in US dollars, whether it is Tether or Circle, the status of the US dollar will not change. On the contrary, KOL Mr.man said,
“Allow me to say what Ripple cannot say directly.
Tether is not directly regulated by government agencies such as the U.S. Financial Crimes Enforcement Network (FinCEN) or the Federal Reserve. It is merely registered with FinCEN for reporting purposes, which is not the same as being regulated. Tether operates from the British Virgin Islands, outside the jurisdiction of major financial regulators, and its reserves lack transparency and oversight.
Still, Tether must provide monthly certifications; as required by the New York State Department of Financial Services (NYDFS), but they only provide quarterly certifications. I look forward to the USDT seizure under pressure.
