The firm behind the world’s leading stablecoin, Tether, is facing more regulatory pressure this week with U.S. financial watchdogs scrutinizing the composition of its reserves.
According to a July 27 Bloomberg report the Acting Comptroller of the Currency Michael Hsu said regulators are looking into Tether’s stockpile of commercial paper to see whether each USDT token really is backed by the equivalent of one U.S. dollar.
A team of regulators led by Treasury Secretary Janet Yellen has held a high-level, closed-door talk on the risks posed by stablecoins and particularly Tether. Citing “people familiar with the matter”, the report stated the President’s Working Group on Financial Markets was concerned about Tether’s claims that it holds massive amounts of commercial paper. This investment type relates to debts that companies issue to meet their short-term funding needs.
The group compared the situation to an unregulated money market mutual fund that could be susceptible to an exodus of investors. The current circulating supply of USDT is 62 billion according to its transparency report.
In mid-May, Tether revealed a loose breakdown of its reserves stating that it had invested in instruments beyond cash and cash equivalents, including Bitcoin, bonds, secured loans, and a large proportion of commercial paper. In an interview with CNBC on July 21, Tether general counsel Stuart Hoegner promised that a full financial audit of its reserves would be coming within months, not years.
Related: Stablecoins under scrutiny: USDT stands by ‘commercial paper’ tether
On July 19, Yellen urged agency lawmakers to “act quickly” to ensure stablecoins face appropriate rules, and a regulatory framework for them is formulated.
On July 27, crypto cynic Senator Elizabeth Warren sent a letter to Janet Yellen asking for greater regulation of the crypto industry. At a hearing of the Senate Banking Committee, Warren again expressed her opposition to crypto:
“Instead of leaving our financial system at the whims of giant banks, crypto puts the system at the whims of some shadowy, faceless group of super-coders and miners, which doesn’t sound better to me.”
Partner at Anderson Kill Law, Preston Byrne, commented that “the far more frightening reality here is that the financial system is in the hands of Elizabeth Warren.”