On May 10, Bu Ge said in the "World Class" podcast that Tether is the next major crypto company targeted by the US SEC since the collapse of FTX, the imprisonment of former CEO SBF, and the conviction of former Binance CEO Changpeng Zhao (CZ).
Bug pointed out: "Do I think there will be another black swan event? Of course, 100%." He further stated that it is obvious that the US government is going after Tether. Tether is a very important part of the ecosystem. I can’t predict what impact this will have on the entire ecosystem.
Such a direct prediction angered Baoge, who fiercely fought back on May 13. BaogeX wrote in the post that an uninformed CEO, leading a company investigated by the SEC, launched a competing stablecoin and was reported to be spreading fear about USDT. The real fact is that Tethert is able to comply with the requirements by leveraging the transparency of blockchain technology and cooperating with global law enforcement agencies. Baoge also shared examples of Tether's policies, actions, and cooperation with law enforcement agencies in the United States and around the world. Since its inception, Tether has cooperated with 124 law enforcement agencies in more than 40 different countries to freeze more than $1.3 billion, most of which are related to fraud, hacking and money laundering, and about $1.6 million is related to terrorist financing.
In the past 12 months alone, Tether has voluntarily assisted law enforcement agencies in blocking 198 wallet requests (90 of which were in cooperation with US law enforcement) and 339 requests in the past 3 years (158 of which were in cooperation with US law enforcement).
In response to Bao Ge, Bu Ge replied on the X platform later on May 13 that (previous remarks) were 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.
The new bill may bring a major impact
In April, U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-NY) introduced the Payments Stablecoin Act of 2024, which would bring a new regulatory framework to the stablecoin industry.
If passed, the bill could significantly impact Tether’s market position.
I didn't expect that the two parties, who always quarreled with each other, would be unexpectedly united on this matter.
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. Larger issuers would have to be depository institutions authorized as issuers of national payment stablecoins.
This means that companies like Circle and Paxos will face new regulatory options, while other forms of stablecoin issuance will be banned.
The bill also contains an “extraterritorial clause” that applies to companies outside the U.S., such as Tether. The U.S. Treasury Department wants the power to go after issuers of stablecoins like Tether, fearing that criminals are using dollar-backed tokens to conduct illegal transactions.
The bill presents a huge opportunity for non-bank institutions like Coinbase and Ripple, making them likely to be 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 filed a confidential S-1 document with the SEC, planning to go public in the future.
The two companies are joint issuers of USDC and share investment income from its $33 billion worth of collateral 50/50. If Tether loses market share due to the bill, these companies will be the first to benefit.
Tether’s response strategy
In the face of an increasingly stringent regulatory environment, Tether has demonstrated strong financial performance and business adjustment capabilities. In the first quarter of 2024, Tether reported $4.5 billion in "financial results" and a net asset of $11.4 billion.
But in comparison, the performance of Coinbase, the largest cryptocurrency exchange in the United States, is much worse, with net revenue of US$1.2 billion in the first quarter of 2024.
Tether is seeking growth beyond stablecoins, including in bitcoin mining, artificial intelligence, and education. The company has also reorganized its strategy to create four independent divisions: finance, data, energy, and education.
According to DefiLlama, as of May 14, USDT still holds 69% of the stablecoin market, but its dominance is not unchallenged. For example, Circle’s USDC surpassed USDT in terms of trading volume in April 2024.
In response to regulatory pressure, Tether has increased its lobbying spending. According to OpenSecrets data, Tether's parent company iFinex increased its lobbying spending by more than 150% in 2023 to $1.2 million, making it the third largest spender in cryptocurrency.
Conclusion
As the regulatory environment in the United States changes, Tether is actively adjusting its strategy to cope with possible shocks. Despite the challenges, the company maintains a strong market position and is exploring new business areas.
