says stablecoins shouldn be like casino

Steven Mnuchin, former Treasury Secretary, says,

They shouldn’t be like casino chips- if you are going to issue a stablecoin, the actual money should be held in a regulated bank, and people who hold stablecoins should be able to exchange those for real dollars at any time.

On its website, the stablecoin issuer reveals a $30 billion investment in commercial paper. However, there is no evidence to back this claim. Similarly, the company states that it registered with the British Virgin Islands Financial Regulator, but the agency denies the claim.

A paper trail backs the investment of $15 billion in cash and extremely low-risk bonds. Jean Chalopin, Chairman of Deltec Bank & Trust, admitted that the Bahamas-based bank overlooks Tether’s $15 billion. However, this accounts for 21% of the $69 billion reserves.

  • Tether recently settled a $1 trillion lawsuit revolving around the unbacked issuance of the stablecoin.
  • Senator Cynthia Lummis has stated that any regulatory framework for stablecoins will require full cash-backing, similar to money market mutual funds.
  • Tether loaned $1 billion to Celsius Network, a crypto lending firm that has come under the ire of financial regulators several times.
  • Tether finds itself at the forefront of controversies when it comes to backing its stablecoin with USD reserves. Tether’s reserves have remained a mystery for years, despite publishing transparency and audit reports.

    Tether’s $69 billion reserves raise questions from regulators

    Tether is no stranger to scrutiny from regulators.
    Tether Limited is the company behind the stablecoin USDT, and Bitfinex owns it.

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    Says stablecoins shouldn be like casino-x

    Tether has offered billions of dollars in loans to companies like Celsius Network, a firm under scrutiny by Kentucky’s securities regulator. Further, Tether recently settled a trillion-dollar lawsuit filed against it by five cryptocurrency traders who claimed to have suffered losses due to unbacked USDT issuance.

    Proponents in the cryptocurrency ecosystem are asking what’s next once Tether comes under further scrutiny from regulators.
    Alex Krüger, a cryptocurrency analyst, tweeted:

    The controversy looms as traders continue buying Tether to get started with cryptocurrency trading and exchange. In countries where Bitcoin and cryptocurrencies are unregulated or banned, there is a higher demand for Tether.

    Pseudonymous cryptocurrency analyst @CryptoWhale considers that Tether’s downfall and lack of real utility are expected to impact Bitcoin negatively.

    Says stablecoins shouldn be like casinos

    An apt example is a Tether (one of the most commonly used of the entire stablecoins) which has always maintained an equal value to one USD.

    The promise of stability has gone a long way into making stablecoins, and more so the tethers, “the bridge between paper currencies (such as the dollar, euro, yuan, etc.) and cryptocurrencies,” says Vincent Boy, a financial analyst and crypto expert working at IG consulting firm.

    Essentially, those who’ve invested in Ethereum and Bitcoin avoid yo-yoing prices by switching their currencies in USD coins, Tethers, or binance USD – all forms of stablecoins – to be aware of their portfolios precise dollar value.

    Says stablecoins shouldn be like casinoz

    Securities and Exchange Commission chairman Gary Gensler has defended his position on cryptocurrencies at the Securities Industry and Financial Markets Association’s annual meeting, addressing the need for regulation of stablecoins.

    Speaking during an interview at the meeting, Gensler addressed the decisions that he and other regulators have taken when it comes to regulating the cryptocurrency industry in the US.

    “There are a lot of investors reaching for yield…but these platforms right now, generally have not come into either the Commodity Futures Trading Commission or the SEC to be within an investor protection framework.

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    Other platforms even require a user to first convert their cryptos into stablecoins before converting them to dollars or other fiat currencies.

    The creators of “stable” cryptos have to therefore retain the same amount of dollars in reserve as the same number of stablecoins that are in circulation to ensure their value. Tether’s founders, for example, stated in December 2021 that they had USD 78.2 million in the bank for purposes of funding the 78 million tokens in circulation.

    Could there be a ‘systemic risk’ on the horizon?

    All this means that “today’s tethers have a market value similar to that of a bank,” says Boy.

    Jim Cramer, the host of “Mad Money” on CNBC, was quoted as saying,

    We need to accept the beatdown in speculative assets for the greater good of the entire stock market. This speculative meltdown can temporarily weigh on the entire market, sure, but once the speculators get shaken out, I’m betting it’s a win for the Dow and definitely the S&P.

    Cramer’s argument leads proponents to the question: What happens when a cryptocurrency is too big to fail?

    If the downfall of Tether triggered a collapse in the crypto economy, it would mean a meltdown of $2.3 trillion.
    Experts consider this a sizable threat to the global economy.

    As more people proceed to exchange dollars for Monero, Bitcoins, and other cryptos, the volume of transactions goes up, meaning that we are left with more stablecoins in circulation.

    Now, Tethers and other stablecoins isn’t under the full control and ownership of insiders, “but also traditional investment funds, businesses, and even banks,” said Janson. This is what the Financial Security Board describes as stablecoins’ “increasing interconnectedness with the traditional financial system.”

    Should these stablecoins fail, investors in the stock market would end up reporting huge losses, something that could result in significant impacts on traditional financial markets as allayed by both the US Federal Reserve and the FSB.

    As things currently stand, the danger seems only relative.

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