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Tether and Ripple CEOs clash over regulatory threats

17 May, 2024

Brad Garlinghouse, CEO of Ripple Labs and the creator of the Ripple (XRP) cryptocurrency, has suggested that the United States government is actively pursuing Tether Holdings, the company that issues the Tether (USDT) stablecoin. If true, this could have significant implications for the cryptocurrency market. However, Tether has hit back against Garlinghouse's claim, raising concerns about self-interested fearmongering on Ripple's part. What's behind this controversy in the crypto community?

Garlinghouse speculates about crypto Black Swan events

In a recent episode of the World Class podcast, Garlinghouse expressed his opinion that another unforeseen 'Black Swan' event, akin to the collapse and subsequent exposure of fraud at FTX, will occur within the crypto sphere.

Garlinghouse confidently asserted that the US government is targeting Tether, although he refrained from calling this specific occurrence a Black Swan event or from elaborating on what the potential consequences of regulatory action against the stablecoin could be. The Ripple CEO  went on to describe Tether as a crucial component of the cryptocurrency ecosystem and an "interesting one to watch."

These remarks come amid Ripple's preparations to introduce its own stablecoin in 2024. The creator of XRP is also embroiled in an ongoing dispute with the US government, specifically with the US Securities and Exchange Commission (SEC) over whether XRP's offering during its ICO counted as unlicensed securities and whether cryptocurrencies, in general, should be considered securities under the purview of the SEC.

Is the US government really going after Tether?

Tether Holdings, the parent company of various subsidiaries involved in managing the USDT stablecoin, has been scrutinised by US authorities over the following issues:

  • In October 2023, Senators Cynthia Lummis and Representative French Hill urged the Department of Justice to investigate the extent of Binance and Tether's support for terrorism. Responding to these concerns, Tether emphasised its cooperation with law enforcement agencies and its commitment to global regulatory compliance. 
  • Reports also suggest that the US Attorney's Office in New York is leading an investigation into Tether's alleged concealment of cryptocurrency-linked funds. Tether has also faced criticism for its lack of transparency regarding the reserves backing USDT. Despite periodic third-party audits, questions persist about the adequacy of these reserves.
  • In October 2021, Tether paid a $41 million fine to the Commodity Futures Trading Commission for misleading customers about its reserve holdings.

Despite these issues, Tether itself has remained stable, and Tether Holdings has always stressed its cooperation with authorities. Without any specific evidence to back it up, Garlinghouse's framing of Tether facing some kind of existential threat with wider consequences appears to be unsubstantiated — and potentially self-interested — speculation.

Tether strikes back, highlights Ripple's hypocrisy

Tether CEO Paolo Ardoino has responded to Ripple CEO Brad Garlinghouse's recent remarks suggesting that the United States government is targeting Tether. 

Ardoino took to social media platform X (formerly Twitter) to address Garlinghouse's comments, accusing him of spreading "fear about USDT" and suggesting that his remarks were hypocritical given Ripple's ongoing legal battle with the SEC and its plans to launch a competing stablecoin to Tether's USDT. 

In his response, Ardoino highlighted USDT's status as the largest stablecoin by market share and its millions of users worldwide. He emphasised USDT's track record of price stability, highly liquid reserves, top-tier custodians, and strong compliance measures.

Ardoino listed several factors that contribute to USDT's compliance, including collaboration with law enforcement agencies across numerous countries and the blocking of over $1.3 billion worth of assets associated with scams, hacks, and money laundering since its inception. He noted that Tether has complied with hundreds of law enforcement requests, including those from US agencies.

Concluding his response, Ardoino took a swipe at other stablecoin issuers, suggesting that Tether's direct cooperation with law enforcement sets it apart from competitors who only comply with judicial orders.

What does the Ripple-Tether rivalry mean for crypto?

Garlinghouse's comments on the podcast interview sparked speculation within the crypto community about potential regulatory action against Tether. However, others viewed it as a competitive tactic ahead of Ripple's planned entry into the stablecoin market.

Ripple plans to launch its own stablecoin later in 2024. Chief Technology Officer David Schwartz has outlined the token's backing with dollar deposits, short-term government Treasurys, and other liquid assets. As the world's largest stablecoin issuer, Tether would be the new Ripple stablecoin's biggest rival. Therefore, Garlinghouse would have an interest in seeing investor confidence in Tether be undermined.

For crypto investors, stablecoins pegged to particular fiat currencies represent a hedge against the volatility of the crypto market and a useful way to facilitate cross-border transactions instead of actually changing money through financial institutions. Dollar-pegged stablecoins such as Tether, for example, allow users to hold, transfer, and spend dollar equivalents without exchange fees. Furthermore, stablecoins are also crucial to earning yields in DeFi staking and lending ecosystems, thanks to their more predictable value.

When considering investing in Tether or Ripple's upcoming stablecoin, it's important to research both sides of the story—both are wildly successful crypto projects that have withstood brushes with US regulators and are now positioned to be rivals. Pay attention to reporting from neutral parties, and consider the knock-on effects in the wider market. For example, the success of Ripple's stablecoin could affect the price of XRP, and Tether's fate can also have repercussions in the crypto sector at large.

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