Certain restrictions on the stablecoin issuer’s offshore usage are imposed by the Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department. One such instance is the partnership between Tether and cryptocurrency mixer Tornado Cash. USDT usage may be impeded by international collaboration.
In a research paper published recently, JPMorgan (JPM) stated that Tether’s (USDT) hegemonic status as the largest stablecoin is in jeopardy because of its reliance on the US market and impending regulations.
According to the study, the Office of Foreign Assets Control (OFAC) allows regulators to influence Tether’s offshore activities even if the stablecoin issuer is not headquartered in the United States.
The bank cited the stablecoin’s connection to Tornado Cash as one such instance, pointing out that in August 2022, OFAC placed the Ethereum network’s crypto-mixer on a blacklist, alleging it assisted in money laundering.
Analysts under the direction of Nikolaos Panigirtzoglou said that “direct legal actions against offshore entities and decentralised firms are complex, but indirect measures and international cooperation could potentially hinder the usage of tether.”
Future regulations on stablecoins would likely “indirectly affect Tether as its desirability will fall relative to stablecoins with higher transparency and greater compliance with new regulatory
The authors noted that this problem would also apply to decentralised finance (DeFi), where USDT is employed as a source of liquidity and collateral. KYC/AML criteria. Customer identification is referred to as KYC, while anti-money laundering laws are referred to as AML.
The report also stated that “the Financial Stability Board (FSB) will coordinate stablecoin regulations globally across the G20, further restricting the usage of unregulated stablecoins like tether.”. Tether has been pushed to release real-time data and has been under pressure to be more open about how its reserves are used. However, JPMorgan claims that the stablecoin issuer’s most recent disclosures are insufficient to allay worries.
The CEO of Tether, Paolo Ardoino, refuted the Wall Street giant’s previous argument that USDT’s dominance was detrimental to the larger cryptocurrency ecosystem, saying in an email that it “seems hypocritical to talk about growing concentration from the biggest bank in the world.”