Tether, Circle Diverge on How to Tackle Global Patchwork of Stablecoin Rules

What’s going to happen next with Tether and Circle, the top providers of US dollar-backed stablecoins, as the boundaries between conventional financial regulations and the crypto market grow more intertwined?

So far these crypto power players have taken different paths.

Circuling acts as the preferred choice for regulatory alignment, resonating with many regulators’ requests for international cooperation. On the other hand, Tether takes a proactive and adaptable stance, capable of responding to national differences, particularly in crime prevention efforts.

In simpler terms, Dante Disparte, the global policy and strategic chief at Circle, suggested that regulations regarding stablecoins ought to be consistent across regions instead of being fragmented.

“He pointed out that other countries aren’t erring or acting incorrectly, but rather, it’s the U.S. not taking action that leaves a gap. These nations are then passing their own laws to fill this void. Therefore, we can anticipate an industry fragmentation trend as more countries build up local advantages through regulations.”

According to Disparate, the application of the Travel Rule to digital asset transactions has established a benchmark for securing the origins of crypto transactions. He further suggested that if regulations were imposed on stablecoins, requiring them to reference currencies with high standards for financial integrity and crime prevention, this would set even more stringent requirements for these transactions.

Tether, which doesn’t cater to American clients and has no plans to do so, looks at the stablecoin market in a similar way to Eurodollars – dollars held outside the US and therefore free from US regulatory oversight. The company is focused on the future in emerging markets and underbanked countries, and is developing its own strategies for collaborating with law enforcement agencies.

CEO Paolo Ardoino stated in an interview that the company could argue it’s beyond the reach of U.S. legal authorities. However, he added with a laugh that such a move would be unwise. In reality, Tether collaborates with numerous law enforcement agencies including the FBI and DOJ in the U.S., as well as over 40 other international forces.

“Ardoino expressed his viewpoint in an interview that the Treasury should engage positively with stablecoins. Using resources like Chainalysis, we can track transactions on the secondary market. Although there are currently no legal obligations for stablecoin issuers regarding the secondary market, Ardoino believes it is our responsibility to keep a watchful eye.”

Need for speed

According to Ardoino, it’s frustrating to quickly address crime issues because by the time a judge rules after six months, the related funds have already been spent.

“Ardoino stated that if the Department of Justice requires freezing certain assets, they should reach out to us. We have the capability to do this with precision. However, once the Treasury places individuals or entities on the Office of Foreign Assets Control’s Specially Designated Nationals list, the assets are instantly frozen. To ensure coordination and prevent public disclosure before an announcement, the Treasury should communicate their intentions and request that we freeze the assets prior to making their announcement.”

The Treasury Department’s Office of Foreign Assets Control, or OFAC for short, maintains a list of SDNs, which are countries or individuals subject to specific financial sanctions. In simpler terms, OFAC is an office within the US Treasury that manages economic restrictions on certain foreign entities and nations, represented as SDNs.

Two companies have faced their fair share of challenges. Over the past few years, there have been numerous discussions about the reliability of Tether (USDT), the largest stablecoin worth $107 billion in market cap. Meanwhile, Circle and its USDC, with a market size one-third that of Tether, experienced uncertainty during Silicon Valley Bank’s collapse in 2023.

Terra Lunacy

The distinction between Circle’s adherence to conventional financial principles and Tether’s proactive, responsive stance towards crypto market volatility is highlighted in their perspectives on the demise of Terra’s UST stablecoin and its supporting currency, Luna – an event considered a pivotal moment leading to a domino effect.

Before Terra’s explosion, Ardoino expressed his concern over the project, calling it a “risky proposition” instead. However, his warning was dismissed: People believed he was merely being negative towards the algorithmic stablecoin because it posed competition to Tether and threatened to capture some of its market share.

“Terra Luna occurred and Tether faced significant pressure as some claimed we would be overwhelmed with redemption requests leading to a financial collapse,” he explained. “However, we successfully processed redeeming $7 billion within 48 hours, and over $20 billion in the following 20 days.”

Disparte of Circle expresses regret over the unintentional setbacks in the crypto industry, which has resulted in an unfavorable reputation despite its youth.

If you had followed the regulations for handling electronic money or money transfers in the US, where these rules vary by state, you could have safeguarded funds like those invested in Terra Luna. This would have prevented the value from falling below its original worth.