US investigates world's largest stablecoin

Tether, the company behind the stablecoin Tether (USDT), is reportedly under criminal investigation by the US Department of Justice for violating anti-money laundering regulations.

WSJ quoted a source in the US government on October 25 saying that prosecutors at the Manhattan law office will be responsible for investigating Tether, including examining whether the stablecoin USDT is used by third parties to finance illegal activities such as drug trafficking, terrorism, hacking, and money laundering.

The U.S. Justice Department actually began investigating Tether several years ago, a source said, initially to see if some of Tether's backers had committed fraud by using forged documents to gain access to the global banking system.

According to sources, the US Treasury Department is also considering sanctions against Tether because this cryptocurrency is widely used by individuals and groups blacklisted by the US. Sanctions against Tether could include banning Americans from doing business with this company.

On X on October 26, Tether CEO Paolo Ardoino said "there is no indication that Tether is under investigation" but did not comment further. The US Department of Justice and the US Department of the Treasury declined to comment.

Tether cryptocurrency icon on smartphone. Photo: Reuters

Immediately after the news of Tether being investigated, the cryptocurrency market immediately fluctuated. According to CoinDesk , the price of Bitcoin fell from 68,800 USD to 65,000 USD before recovering slightly to 66,000 USD, while the general market was in the red.

USDT is one of the leading stablecoins . Stablecoins are cryptocurrencies developed on the blockchain and have a price-stabilizing role, pegged to the value of fiat currencies, such as USD or Euro. In theory, one stablecoin will be worth the same as one USD (1:1 exchange rate), regardless of the fluctuations of other cryptocurrencies. This type of currency has become an important factor in the cryptocurrency ecosystem, making it easy for users to trade.

Unlike some other stablecoins, Tether backs USDT with real assets. The company has said that this approach keeps the coin from being at risk, which happened to Do Kwon ’s Terraform Labs , when the UST stablecoin was only backed 1:1 by another token, Luna. When Luna “collapsed,” UST collapsed.

But the fact that Tether now holds more than $120 billion in reserves in traditional banking institutions has led experts to say that “anything that happens to Tether will affect other banking institutions.” “I think the concentration risk for Tether is very high,” Rajeev Bamra, head of digital asset and DeFi strategy at Moody’s Investor Service, told Reuters , referring to Tether’s dominance in the cryptocurrency world earlier this year.