According to Dune Analytics, as of August 28, Tether has banned 716 USDT addresses that contain over 400 million USDT. The news shocked the crypto market as we reflect on how centralized institutions strike out against decentralized companies and impose sanctions on them. Is today’s crypto market genuinely decentralized?
The Tornado Cash sanction has attracted the crypto spotlight, and many projects and companies have publicly protested against the sanction. In particular, MakerDAO founder Rune Christensen plans to de-peg the platform’s stablecoin DAI from real-world assets to make sure that it will remain decentralized.
Of course, Tether, the company that we will focus on today, also stated its stance. On August 25, the USDT issuer announced that “Tether has not been contacted by US officials or law enforcement with a request to freeze the addresses sanctioned by OFAC”, and it will remain inactive in response to the TC sanction and wait for such requests.
The company also said that it works closely with law enforcement worldwide to assist in investigations, including freezing addresses. Tether is in almost daily contact with key law enforcement officers. When Tether receives an applicable/legitimate request from a verified law enforcement agent to freeze a privately held wallet, it complies with the freeze (Tether does not freeze wallets of exchanges/services).
Meanwhile, the company believes that unilaterally freezing secondary market addresses could be a highly disruptive and reckless move. Even if Tether recognizes suspicious activities on such an address, completing a freeze without the verified instruction of law enforcement and other government agencies might interfere with ongoing law enforcement investigations.
We don’t wish to read too much into Tether’s statement, but it did give us mixed feelings. On the one hand, regulatory interference might make USDT safer; on the other hand, this could compromise the property of decentralization of cryptocurrency. Set aside the issue of privacy, regulatory interference could mean that you might not be able to truly own your coins.
As the stablecoin with the highest market cap, USDT is also seen as the king of stablecoins, but after the collapse of UST, its market cap fell by 20% as its reserves lack transparency, which has been questioned by many.
On August 19, Tether released a report independently audited by BDO, a top 5 accounting firm, to enhance the transparency of reserves. The report shows that Tether owns $66.4 billion in reserves, with liabilities totaling $66.2 billion. Its commercial paper holdings declined over 58% from $20 billion in Q1 2022 to $8.5 billion, and its cash and bank deposits rose 32%.
But soon afterward, the Wall Street Journal questioned that Tether’s earnings were too low, and that a mere 0.3% slump in assets could result in “technical insolvency.” Tether responded that its business has remained profitable, and the assets it holds are all audited, safe assets.
The controversy over Tether’s collateral assets has always been around. If the company suffers a run due to a crisis of confidence, the entire crypto market will be thrown into chaos.
Some investors believe that Tether is likely to issue USDT through lending. In other words, instead of issuing USDT after depositing or receiving collateral assets as the company alleged, Tether might issue part of USDT first, and then lend USDT to someone through collateralization. The greatest risk of such an issuance model might come from the quality of the collateral provided by a borrower.
This year, we have seen a sharp fall in the market cap of USDT, and the stablecoin market is no longer dominated by one player. Having been doubted and challenged multiple times, Tether has started to improve the transparency of its assets. In the meantime, decentralized stablecoins have thrived. Standing on the shoulders of fiat-backed stablecoins, decentralized stablecoins have recorded sound growth, and we look forward to their future performance.
Whether it is the freezing of assets by regulators we mentioned at the beginning of this article or the issue of collateral assets we just discussed, the fundamental demand among investors is enhanced security.
When browsing through the many crypto exchanges out there, we noticed a security exception. CoinEx, an exchange that’s been running for nearly five years, has never suffered any security breach.
Apart from that, on CoinEx, all crypto assets are 100% reserved. The exchange does not misuse users’ assets for any reason whatsoever. Moreover, all withdrawals are 100% processed in time. As we learn more about CoinEx, we are surprised to find that it is also the first CEX to introduce the AMM function. Besides, the exchange features simple, neat trading pages that promise great user experiences. If you haven’t tried the exchange, click on the link below and get registered on CoinEx: https://www.coinex.com/
Disclaimer: This article offers no investment advice, and all statistics mentioned herein are for reference only. The information provided herein may not be relied upon for investment decisions, for which you will be fully liable.