While Tether (USDT) cannot be a US entity, US authorities can still exercise a certain degree of control over the stablecoin issuer through the Office of Foreign Assets Control (OFAC), according to JPMorgan.
“U.S. regulators may exercise some oversight over the offshore use of Tether through OFAC,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report Thursday.. “An example is Tether’s collaboration with Tornado Cash, a platform for enhancing privacy on the Ethereum network.”
OFAC, an arm of the US Treasury Department, sanctioned Tornado Cash in 2022, saying it was a key tool used by criminals to launder money.. Then Tether stated that it would not block Tornado Cash addresses, since the company had not yet received such requests from US authorities. However, last December, Tether announced that it had frozen its stablecoins held in OFAC-sanctioned crypto wallets as a “preventive” security measure, ultimately succumbing to OFAC.
When contacted for comment, Tether CEO Paolo Ardoino highlighted the company's same December announcement and suggested that JPMorgan appears to be jealous of Tether's dominant position in the cryptocurrency market.
“JPMorgan's current concerns seem to have more to do with envy of the development of financial and payment services, which they ignored for a decade and are now upset because it has gained more support,” Ardoino said. “If I were them, I would be more concerned about their total fines of $39 billion.”
Earlier this month, Ardoino called JPMorgan “hypocritical” when the bank said the growing concentration of Tether was negative for cryptocurrency markets.
JPMorgan Foresees Decline in Tether Use with Upcoming Stablecoin Rules
Upcoming stablecoin regulations in the US and Europe will impact Tether usage, according to JPMorgan analysts. These rules “will likely put indirect pressure on Tether as its attractiveness decreases relative to stablecoins due to greater transparency and greater compliance with new regulatory/KYC/AML standards,” analysts said. “This problem for Tether also applies to the DeFi space, where Tether is widely used as a source of collateral and liquidity.”
Analysts have also expressed dissatisfaction with Tether's current disclosures, saying they are not enough to allay concerns.
“Tether’s reports continue to lack a complete and detailed asset breakdown and independent audits (in lieu of audit assurances),” they said.
In addition, analysts highlighted S&P Global's weak rating of Tether's ability to maintain its peg to the US dollar at level 4 (where 5 is weak and 1 is strong).. While Tether reported billions of dollars in profits last year due to high interest rates and rising underlying asset prices, “there are significant price risks associated with assets other than U.S. Treasury bills,” analysts said.