Ripple CEO Brad Garlinghouse has expressed his belief that the United States government is actively targeting stablecoin issuer Tether, a move that could have unforeseeable consequences for the cryptocurrency markets. During a recent episode of the World Class podcast on May 10, Garlinghouse stated that there would undoubtedly be another black swan event in the cryptocurrency industry, similar to the collapse and subsequent exposure of fraud committed by FTX’s executives. While he did not provide further details or suggest that U.S. action against Tether would be the next black swan, Garlinghouse described it as an “interesting one to watch.” He emphasized the importance of Tether within the cryptocurrency ecosystem but admitted uncertainty regarding the potential impact of U.S. regulatory measures against the stablecoin. These comments from Garlinghouse coincide with Ripple’s plans to launch its own stablecoin in 2024.
Tether Holdings, the parent company of various subsidiaries responsible for issuing and managing the world’s largest stablecoin, Tether (USDT), has faced scrutiny from U.S. lawmakers. In a letter sent in October 2023, U.S. Senator Cynthia Lummis and Representative French Hill urged the Department of Justice to thoroughly assess the extent to which Binance and Tether are providing support and resources for terrorism. Tether responded to the letter, stating its commitment to assisting law enforcement and working with authorities globally. In November 2022, U.S. Attorney Damian Williams took over a Justice Department investigation into Tether’s alleged concealment of funds linked to cryptocurrencies from banks used for cash transactions.
Tether has also faced criticism for its lack of transparency regarding the reserves backing USDT. In recent years, the company has published quarterly third-party audits to address these concerns. In October 2021, Tether paid a $41 million fine to the Commodity Futures Trading Commission after the regulator found that the company had misrepresented its reserve holdings to customers. The investigation revealed that Tether held sufficient fiat reserves to back USDT for only 27.6% of the days between June 1, 2016, and February 25, 2019.
As for Ripple, the company plans to launch its own stablecoin pegged to the U.S. dollar later in 2024. Ripple’s Chief Technology Officer, David Schwartz, stated in an interview with Cointelegraph in April that the token would be backed by dollar deposits, short-term government Treasurys, and other cash equivalents.
With the rise of stablecoins, concerns regarding their stability, bank runs, and other risks have come to the forefront. The cryptocurrency industry must navigate these challenges and ensure the integrity and reliability of stablecoin offerings.