The U.S. Senate Banking Committee chairman, Sherrod Brown, has written a letter to the Chief Executive Officer of Tether Holdings Limited, Jean-Louis van der Velde requesting information regarding the Tether (USDT) stablecoin.
Stablecoins, according to the President’s Working Group on Financial Markets (the PWG) latest report, threaten investor protection and market integrity. The rising usage of stablecoins and their relevance in digital asset transactions highlights the need to better understand Tether’s fundamental functioning and limits.
Sherrod Brown highlighted that the market value of stablecoins produced by the major stablecoin issuers hit $127 billion in October 2021, a nearly 500% increase over the preceding year. Whatsmore, the complexities of digital assets and stablecoins and the requirement for reliable and robust networks may make it difficult for investors and consumers to comprehend their roles and risks completely.
On this note, Brown stated in the letter:
“I have significant concerns with the non-standardized terms applicable to the redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms.”
Buying stablecoin directly from the issuer
While stablecoins are often “minted” in return for U.S. dollars or other conventional currencies, purchasing stablecoins via a trading platform the chairman considers may not give users the same rights and entitlements as buying directly from an issuer.
Customers may also have varying privileges dependent on the number of stablecoins they hold or have transacted. Furthermore, since the name “stablecoin” is so widely used, consumers may not be aware of the specific characteristics and terms of each stablecoin.
For this reason, Brown outlined six questions answered in plain English. In order to get information from the Tether CEO that helps elucidate the fundamental working elements of Tether is crucial to improving knowledge of digital assets.
“Given the importance of the specifics related to the use of Tether to investors and consumers, please respond to the questions below in clear, straightforward terms.”
The chairman’s questions
The questions involved describing Tether’s fundamental buy, exchange, or minting processes in U.S. dollars and explaining how to redeem Tether for U.S. dollars. In addition to identifying any minimum redemption size, waiting time, and outlining any internal evaluations or studies.
Furthermore, the chairman wants answers on the market or operational factors that impede the acquisition or redemption of Tether in USD or another digital asset on top of information on any trading platforms that have specific Tether rights, privileges, or agreements.
The chairman has requested a response from the CEO of Tether by December 3 in answer to the questions above.
Tether fined over $40 million
Previously, executives of the digital asset exchange Bitfinex, which is closely related to Tether, said that the stablecoin is fully backed by assets that include cash, cash equivalents, and BTC amid reports that only 74 percent of USDT is backed.
However, on October 15, 2021, the U.S. CFTC issued an order for Tether and Bitfinex to pay fines totaling $42.5 million. As per the document, Tether had to pay $41 million over claims that the Tether stablecoin was fully backed by U.S. dollars. Bitfinex was required to pay $1.5 million for illegal transactions while operating Bitfinex cryptocurrency trading platform and violation of prior CFTC order.