The U.S. Treasury and its affiliate, the OCC, are investigating whether the stores of value described by Tether Limited in its report last May actually exist.
Amid increased regulatory pressure, the US Treasury Department has ordered an investigation into Tether, to find out the truth about the cash reserves and commercial paper backing the issuance of its cryptocurrency. USDT, the stablecoin most traded in the industry which has over $61.800 billion in market capitalization at the time of writing.
La noticia It was revealed by Bloomberg, which recently reported that several members of the company were being investigated by the United States Department of Justice (DOJ) for alleged bank fraud; although Tether denied these accusations.
Now, according to the financial company's information outlet, the Treasury Department, through its affiliated entity OCC, the Office of the Comptroller of the Currency, is investigating the aforementioned reserves of value described by Tether Limited in its last report in May.
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Tether Stores of Value
Tether Limited, which is the company responsible for issuing USDT, reported in May that its stablecoin was only 3,87% backed by cash and cash equivalents, while over 65,39% of its issuance is backed by commercial paper. The rest of the USDT reserve composition is made up of bonds, deposits, and Treasury securities.
Source: Tether Limited
The details of the report have worried the community and financial regulators, revealing that the company has virtually no cash on its balance sheet to support the stablecoin's massive market cap. It is worth remembering that a year ago, USDT's market cap was just $10.000 billion.
Economipedia sets commercial paper as “a short-term financing instrument used and issued by companies, which is based on the recognition of a commercial credit by the debtor”. Thus, it is a promise to pay that allows a company to access financing quickly, while granting the debtor a longer period of time to pay the commercial debt. But in the case of Tether Limited, the company holds massive amounts of commercial paper.
Upon learning of the reserves report, JPMorgan described Tether Limited as the seventh company with the most commercial paper worldwide.
The OCC begins to act
Michael Hsu, the current Comptroller of the Currency, said the OCC is examining Tether’s commercial paper reserves to determine whether the company is actually living up to its commitment that each USDT coin issued is backed by the equivalent of one U.S. dollar, guaranteeing its value and “stablecoin” designation.
Hsu compared USDT to unregulated money market funds, noting that these have been a priority for the OCC since March 2020, when investors began pulling their money out of these funds, causing panic in the market.
US regulators are focusing on how they can regulate the market for cryptocurrencies, and stablecoins, to act appropriately on a rapidly growing and evolving market. Yesterday, Senator Elizabeth Warren he asked Warren called on Treasury Secretary Janet Yellen to use her power to demand an efficient regulatory framework for the crypto industry. For Warren, cryptocurrencies, and especially stablecoins and crypto tokens, are a DeFi, may put at risk the security and stability of the United States financial system.
Tether in the crosshairs of China, Japan and Europe
In addition to US regulators, financial authorities in China and Japan have also expressed concern about the rapid growth of stablecoins such as USDT.
In China, the vice governor of People's Bank of China (PboC), fan Yifei, announced at the beginning of the month that the country was “quite concerned” about the financial risks associated with stablecoins like Tether, so they are beginning to take some measures to control the risks, without giving further details on the matter.
On the other hand, in Japan, the Financial Services Agency (FSA) and financial regulators are reinforcing diplomatic efforts with international organizations to regulate the market for stablecoins, which are proliferating as a new form of private money that could disrupt the stability of their financial system. In England and Europe, regulators are also becoming concerned about the rapid growth of these stablecoins.
Andrew Bailey, governor of Bank of England, he asked stricter regulation on stablecoins while the European Commission recently presented a proposal to regulate the crypto industry, including stablecoins.
Cryptoregulation
On the other hand, despite the looming regulatory environment, several high-level officials of central banks do not see stablecoins as an imminent risk; so much so that the vice president of the United States Federal Reserve (FED), Randal Quarle, recommends that the FED regulate the stablecoin market instead of issuing a central bank digital currency (CBDC) for the US dollar.
Jerome Powell, the chairman of the FED, has said that the United States wants to lead in crypto regulation and that he will present a report on cryptocurrencies, stablecoins and CBDCs next September. However, he also said who is still not fully convinced of the potential benefits of issuing a digital dollar.
Continue reading: China looks at Tether and announces “some measures” against stablecoin risks
