In 2024 so far, Tether has been a hot topic in the crypto space, but not always for the best reasons. Tether now faces a dilemma regarding its support for the Tron network amidst scrutiny over the network's alleged involvement in cyber fraud and money laundering, particularly in Southeast Asia.
Meanwhile, Binance has introduced a selling price cap for USDT in Nigeria to comply with local regulations. In the US, discussions around the need for tighter regulation of the crypto sector have intensified, with Coinbase highlighting the gap in addressing money laundering through cryptocurrency and Circle advocating for stricter oversight of USD-backed stablecoins to safeguard against financial crimes.
Tether's Dilemma on the Tron Blockchain
Tether, the issuer of the world's largest stablecoin by market cap, USDT, has not provided any clear stance on whether it will continue its support for the Tron network. This comes in the wake of Circle, the company behind USD Coin (USDC) and a direct competitor to Tether, announcing its decision to stop minting USDC on Tron, stating that the move is part of its efforts to maintain the trust, transparency, and safety of its stablecoin.
Tether's response to questions about potentially following Circle's footsteps was non-committal, pointing out that its tokens are issued on multiple blockchains, which serve as mere transport layers for the tokens. The firm also highlighted its capability to freeze transactions on any supported blockchain to comply with regulatory requirements and its continuous monitoring of the safety standards of these blockchains.
The significance of the Tron network to Tether's operations is underscored by the fact that more than half of the nearly 101 billion USDT tokens in circulation are hosted on Tron. Despite the controversy surrounding Tron, including allegations of its involvement in cyber fraud and money laundering activities in Southeast Asia, Tether has defended its platform's traceability and its cooperation with law enforcement agencies.
The backdrop of these developments includes a United Nations report pointing out the preference for USDT on Tron among cybercriminals in Southeast Asia and an ethics watchdog group urging the U.S. Congress to investigate Tron's alleged connections to organized crime. Furthermore, the U.S. Securities and Exchange Commission (SEC) has taken legal action against the Tron Foundation and its founder, Justin Sun, accusing them of offering unregistered securities and engaging in manipulative trading practices, charges Sun denies.
Naturally, this situation places Tether in a very delicate position as it tries to balance the need to maintain a robust compliance framework with the desire to support the diverse blockchain ecosystems that host its stablecoin.
Binance Caps USDT Sales in Nigeria
Meanwhile, Binance has implemented a price cap on the selling price of Tether USDT tokens on its peer-to-peer (P2P) platform in Nigeria, limiting the selling price to 1,802 naira per USDT. This will ensure compliance with local authorities. The price cap has led to the blocking of accounts attempting to sell USDT above the threshold, pushing some traders to look for other exchanges without these restrictions.
The decision to set a price cap came after allegations that Binance was conforming to the Nigerian government's foreign exchange control policies by pegging the NGN/USDT trading rate. Binance clarified that the price peg resulted from an "automatic system pause" triggered by significant currency movements, assuring people that this mechanism is temporary and necessary adjustments have been made to resume trading.
This action aligns with broader efforts by Nigeria's Office of the National Security Adviser and the Central Bank of Nigeria (CBN) to combat forex speculation and address the economic instability driven by the naira's depreciation and inflation. The government's efforts to unify forex windows have seen the naira's value plummet, exacerbating economic challenges.
In July of 2023, the Nigerian Securities and Exchange Commission (SEC) issued a warning against Binance, stating that the platform operated without a local license and pointing out the risks associated with unregulated platforms. Despite these challenges, Nigeria has emerged as the world's largest P2P crypto market, partly due to a 2021 ban by the Central Bank of Nigeria on crypto transactions through traditional banking, which was later lifted in December 2023.
Stablecoin Scrutiny
In a session with the House Financial Services Committee earlier this month, Grant Rabenn, head of Financial Crimes Legal at Coinbase, brought to light the challenges faced by the United States in combating money laundering in the crypto sector. Rabenn highlighted a major disparity between the actions taken by the Office of Foreign Assets Control (OFAC) and the reality of cryptocurrency-related criminal activities. While OFAC has sanctioned 560 crypto addresses for their involvement in illicit activities, Coinbase's investigations have identified over eight million addresses linked to bad actors, suggesting a massive network of unregulated activities that bypass stringent U.S. anti-money laundering (AML) standards.
Rabenn pointed to offshore exchanges as the primary culprits in facilitating these illicit activities, urging the U.S. government to extend its regulatory reach to these non-compliant platforms. He also emphasized the importance of leveraging the full spectrum of regulatory tools available to the U.S. to tackle these entities.
Caroline Hill, Circle’s Chief of Global Policy and Regulatory Strategy, also voiced her advocacy for stricter oversight of entities connected to the U.S. dollar, especially those involved with USD-backed stablecoins. Hill pointed out the need for embedding democratic principles in the operation of such stablecoins, pointing out Tether’s major custodian, Cantor Fitzgerald, as a potential facilitator of financial crimes due to its role in the stablecoin's operations.
Hill urged the Treasury Department to consider taking actions against Tether, leveraging its connections to the U.S. financial system as a basis for intervention. She was hopeful that the department is seriously looking into the matter, and emphasized the importance of stablecoin issuers adopting proactive measures like smart contract technology to prevent the misuse of their tokens.
